[10/8/97]
Amended and Restated
Loan and Security Agreement
by and among
CoreStates Bank, N.A.
as Lender
Congress Financial Corporation
as Agent
and
Children's Concept, Inc.
doing business as Zany Brainy
as Borrower
Dated: October 9, 1997
TABLE OF CONTENTS
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SECTION 1. DEFINITIONS.............................................................. 1
SECTION 2. ACKNOWLEDGEMENT AND RESTATEMENT.......................................... 13
2.1 Existing Obligations........................................................ 13
2.2 Acknowledgement of Security Interest........................................ 13
2.3 Existing Agreements......................................................... 13
2.4 Restatement................................................................. 14
SECTION 3. CREDIT FACILITIES........................................................ 14
3.1 Loans....................................................................... 14
3.2 Letter of Credit Accommodations............................................. 16
3.3 Availability Reserves....................................................... 18
3.4 Commitment.................................................................. 19
SECTION 4. INTEREST AND FEES........................................................ 21
4.1 Interest.................................................................... 21
4.2 Closing Fee................................................................. 22
4.3 Servicing Fee............................................................... 22
4.4 Unused Line Fee............................................................. 23
4.6 Changes in Laws and Increased Costs of Loans................................ 23
SECTION 5. CONDITIONS PRECEDENT..................................................... 24
5.1 Conditions Precedent to Initial Loans and Letter of Credit Accommodations... 24
5.2 Conditions Precedent to All Loans and Letter of Credit Accommodations....... 26
SECTION 6. SECURITY INTEREST........................................................ 26
SECTION 7. COLLECTION AND ADMINISTRATION............................................ 28
7.1 Borrower's Loan Account..................................................... 28
7.2 Statements.................................................................. 28
7.3 Collection of Accounts...................................................... 28
7.4 Payments.................................................................... 30
7.5 Authorization to Make Loans................................................. 31
7.6 Use of Proceeds............................................................. 31
7.7 Sharing of Payments, Etc.................................................... 31
7.8 Settlement Procedures....................................................... 32
SECTION 8. COLLATERAL REPORTING AND COVENANTS....................................... 34
8.1 Collateral Reporting........................................................ 34
8.2 Accounts Covenants.......................................................... 35
8.3 Inventory Covenants......................................................... 36
8.4 Power of Attorney........................................................... 37
8.5 Right to Cure............................................................... 38
8.6 Access to Premises.......................................................... 38
SECTION 9. REPRESENTATIONS AND WARRANTIES........................................... 39
9.1 Corporate Existence, Power and Authority; Subsidiaries...................... 39
9.2 Financial Statements; No Material Adverse Change............................ 39
9.3 Chief Executive Office; Collateral Locations................................ 39
9.4 Priority of Liens; Title to Properties...................................... 40
9.5 Tax Returns................................................................. 40
9.6 Litigation.................................................................. 40
9.7 Compliance with Other Agreements and Applicable Laws........................ 40
9.8 Environmental Compliance.................................................... 41
9.9 Credit Card Agreements...................................................... 42
9.10 Employee Benefits.......................................................... 43
9.11 Bank Accounts.............................................................. 43
9.12 Accuracy and Completeness of Information................................... 43
9.13 Survival of Warranties; Cumulative......................................... 44
SECTION 10. AFFIRMATIVE AND NEGATIVE COVENANTS....................................... 44
10.1 Maintenance of Existence................................................... 44
10.2 New Collateral Locations................................................... 44
10.3 Compliance with Laws, Regulations, Etc..................................... 44
10.4 Payment of Taxes and Claims................................................ 45
10.5 Insurance.................................................................. 45
10.6 Financial Statements and Other Information................................. 46
10.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc.................... 47
10.8 Encumbrances............................................................... 48
10.9 Indebtedness............................................................... 49
10.10 Loans, Investments, Guarantees, Etc....................................... 49
10.11 Dividends and Redemptions................................................. 50
10.12 Transactions with Affiliates.............................................. 50
10.13 Credit Card Agreements.................................................... 50
10.14 Adjusted Tangible Net Worth............................................... 51
10.15 Compliance with ERISA..................................................... 51
10.16 Additional Bank Accounts.................................................. 52
10.17 Costs and Expenses........................................................ 52
10.18 Further Assurances........................................................ 52
SECTION 11. EVENTS OF DEFAULT AND REMEDIES........................................... 53
11.1 Events of Default.......................................................... 53
11.2 Remedies................................................................... 54
SECTION 12. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW.............................................. 56
12.1 Confession of Judgment..................................................... 56
12.2 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver...... 57
12.3 Waiver of Notices.......................................................... 58
12.4 Amendments and Waivers..................................................... 58
12.5 Waiver of Counterclaims.................................................... 58
12.6 Indemnification............................................................ 58
SECTION 13. THE AGENT................................................................ 59
13.1 Appointment, Powers and Immunities......................................... 59
13.2 Reliance by Agent.......................................................... 59
13.3 Events of Default.......................................................... 60
13.4 Rights as a Lender......................................................... 60
13.5 Indemnification............................................................ 61
13.6 Non-Reliance on Agent and Other Lender..................................... 61
13.7 Failure to Act............................................................. 61
13.8 Resignation of Agent....................................................... 62
13.9 Consents and Releases of Collateral under Financing Agreements............. 62
13.10 Collateral Matters......................................................... 62
SECTION 14. TERM OF AGREEMENT; MISCELLANEOUS......................................... 63
14.1 Term...................................................................... 63
14.2 Notices.................................................................... 65
14.3 Partial Invalidity......................................................... 65
14.4 Successors................................................................. 65
14.5 Assignments and Participations............................................. 66
14.6 Entire Agreement........................................................... 68
INDEX TO
EXHIBITS AND SCHEDULES
----------------------
Exhibit A Information Certificate
Schedule 1.29 List of Existing Agreements
Schedule 1.30 Existing Letters of Credit
Schedule 1.50 Permitted Holders
Schedule 7.3 Bank Accounts
Schedule 9.4 Existing Liens
Schedule 9.7 Permits
Schedule 9.8 Environmental Matters
Schedule 9.9 Credit Card Agreements
Schedule 10.9 Existing Indebtedness
Schedule 10.10 Existing Loans, Investments, Guarantees
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
------------------------------------------------
This Amended and Restated Loan and Security Agreement dated as of October 9,
1997 is entered into by and among Corestates Bank, N.A., a national banking
association ("Lender"), Congress Financial Corporation, in its capacity as
administrative agent and collateral agent for Lender (in such capacity "Agent")
and Children's Concept, Inc., doing business as Zany Brainy, a Pennsylvania
corporation ("Borrower").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Borrower and Lender have entered into certain financing
arrangements pursuant to which Lender has made loans and advances and provided
other financial accommodations to Borrower as set forth in the Existing
Agreements (as hereinafter defined);
WHEREAS, Borrower has requested that Agent act as agent for Lender in
connection with its financing arrangements with Borrower pursuant to which Agent
may make loans and advances and provide other financial accommodations on behalf
of Lender to Borrower;
WHEREAS, Borrower has requested that Lender extend, modify and restate the
existing financing arrangements of Lender with Borrower;
NOW, THEREFORE, in consideration of the mutual conditions and agreements set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
SECTION 1. DEFINITIONS
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All terms used herein which are defined in Article 1 or Article 9 of the
Uniform Commercial Code shall have the meanings given therein unless otherwise
defined in this Agreement. All references to the plural herein shall also mean
the singular and to the singular shall also mean the plural unless the context
otherwise requires. All references to Borrower, Agent and Lender pursuant to
the definitions set forth in the recitals hereto, or to any other person herein,
shall include their respective successors and assigns. The words "hereof",
"herein", "hereunder", "this Agreement" and words of similar import when used in
this Agreement shall refer to this Agreement as a whole and not any particular
provision of this Agreement and as this Agreement now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced. The
word "including" when used in this Agreement shall mean "including, without
limitation". An Event of Default shall exist or continue or be continuing until
such Event of Default is waived in accordance with Section 12.4 or cured in a
manner satisfactory to Agent, if such Event of Default is capable of being cured
as determined by Agent. Any accounting term used herein unless otherwise
defined in this
Agreement shall have the meanings customarily given to such term in accordance
with GAAP. For purposes of this Agreement, the following terms shall have the
respective meanings given to them below:
1.1 "Accounts" shall mean all present and future rights of Borrower to
payment for goods sold or leased or for services rendered, which are not
evidenced by instruments or chattel paper, and whether or not earned by
performance, and including, without limitation, Credit Card Receivables.
1.2 "Adjusted Eurodollar Rate" shall mean, with respect to each Interest
Period for any Eurodollar Rate Loan, the rate per annum (rounded upwards, if
necessary, to the next one-sixteenth (1/16) of one (1%) percent) determined by
dividing (a) the Eurodollar Rate for such Interest Period by (b) a percentage
equal to: (i) one (1) minus (ii) the Reserve Percentage. For purposes hereof,
"Reserve Percentage" shall mean the reserve percentage, expressed as a decimal,
prescribed by any United States or foreign banking authority for determining the
reserve requirement which is or would be applicable to deposits of United States
dollars in a non-United States or an international banking office of Reference
Bank used to fund a Eurodollar Rate Loan or any Eurodollar Rate Loan made with
the proceeds of such deposit, whether or not the Reference Bank actually holds
or has made any such deposits or loans. The Adjusted Eurodollar Rate shall be
adjusted on and as of the effective day of any change in the Reserve Percentage.
1.3 "Adjusted Tangible Net Worth" shall mean as to any Person, at any time,
in accordance with GAAP (except as otherwise specifically set forth below), on a
consolidated basis for such Person and its Subsidiaries (if any), the amount
equal to: (a) the difference between: (i) the aggregate net book value of all
assets (excluding the value of patents, trademarks, trade names, copyrights,
licenses, goodwill, leasehold improvements, prepaid assets and other intangible
assets) of such Person and its Subsidiaries, calculating the book value of
inventory for this purpose principally on a first-in-first-out basis, at the
lower of cost or market using weighted average cost, after deducting from such
book values all appropriate reserves in accordance with GAAP (including all
reserves for doubtful receivables, obsolescence, depreciation and amortization)
and (ii) the aggregate amount of the indebtedness and other liabilities of such
Person and its Subsidiaries (including tax and other proper accruals) plus (b)
----
indebtedness of such Person and its Subsidiaries which is subordinate in right
of payment to the full and final payment of all of the Obligations on terms and
conditions acceptable to Agent.
1.4 "Agent" shall mean Congress Financial Corporation in its capacity as
administrative agent and collateral agent for Lender pursuant to the terms
hereof and any replacement or successor agent hereunder.
1.5 "Availability Reserves" shall mean, as of any date of determination,
such amounts as Agent may from time to time establish and revise in good faith
reducing the amount of Loans and Letter of Credit Accommodations that would
otherwise be available to Borrower under the lending formula(s) provided for
herein: (a) to reflect events, conditions, contingencies or risks
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that, as determined by Agent in good faith, do or may affect either (i) the
Collateral or any other property which is security for the Obligations or its
value, or (ii) the security interests and other rights in the Collateral of
Agent held for the benefit of Lender (including the enforceability, perfection
and priority thereof); or (iii) the assets, business or prospects of Borrower or
any Obligor (b) to reflect Agent's good faith belief that any collateral report
or financial information furnished by or on behalf of Borrower or any Obligor to
Agent is or may have been incomplete, inaccurate or misleading in any material
respect; (c) in respect of any state of facts which Agent determines in good
faith constitutes an Event of Default or may, with notice or passage of time or
both, constitute an Event of Default; (d) to reflect outstanding Letter of
Credit Accommodations as provided in Section 3.2 hereof; or (e) as otherwise
provided in Section 3.3 hereof.
1.6 "Blocked Accounts" shall have the meaning set forth in Section 7.3
hereof.
1.7 "Business Day" shall mean any day other than a Saturday, Sunday, or
other day on which commercial banks are authorized or required to close under
the laws of the State of New York or the Commonwealth of Pennsylvania, and a day
on which the Reference Bank and Agent are open for the transaction of business,
except that if a determination of a Business Day shall relate to any Eurodollar
Rate Loans, the term Business Day shall also exclude any day on which banks are
closed for dealings in dollar deposits in the London interbank market or other
applicable Eurodollar Rate market.
1.8 "Capital Stock" shall mean, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated) of
such Person's capital stock at any time outstanding, and any and all rights,
warrants or options exchangeable for or convertible into such capital stock (but
excluding any debt security that is exchangeable for or convertible into such
capital stock).
1.9 "Change of Control" shall mean the occurrence of any of the following:
(a) all or substantially all of Borrower's assets are sold, in one or in a
series of transactions to any "person" or "group" (as such terms are used in
Sections 14(d)(2) and 13(d)(3), respectively, of the Securities Exchange Act)
other than to Permitted Holders; (b) an event or series of events (whether a
stock purchase, amalgamation, merger, consolidation or other business
combination or otherwise) by which any person or group (other than a Permitted
Holder) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Securities Exchange Act) directly or indirectly of fifty (50%) percent or more
of the combined voting power of the then outstanding securities of Borrower
ordinarily (and apart from rights accruing under certain circumstances) having
the right to vote in election of directors or (c) after the date of this
Agreement, the replacement of a majority of the Board of Directors of Borrower
over a two (2) year period commencing from the date of this Agreement from the
directors who constituted the Board of Directors at the beginning of such period
other than directors whose nominations for election by the stockholders of
Borrower was approved by such Board of Directors.
3
1.10 "Code" shall mean the Internal Revenue Code of 1986, as the same now
exists or may from time to time hereafter be amended, modified, recodified or
supplemented, together with all rules, regulations and interpretations
thereunder or related thereto.
1.11 "Collateral" shall have the meaning set forth in Section 6 hereof.
1.12 "Commitment" shall have the meaning set forth in Section 3.4 hereof.
1.13 "Consolidated Net Income" shall mean, with respect to any Person, for
any period, the aggregate of the net income (loss) of such Person and its
Subsidiaries, on a consolidated basis, for such period (excluding to the extent
included therein any extraordinary gains) after deducting all charges which
should be deducted before arriving at the net income (loss) for such period and
after deducting the Provision for Taxes for such period, all as determined in
accordance with GAAP; provided, that, (a) the net income of any Person that is
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not a wholly-owned Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid or payable to such Person or a wholly-owned Subsidiary of
such Person; (b) except to the extent included pursuant to the foregoing clause,
the net income of any Person accrued prior to the date it becomes a wholly-owned
Subsidiary of such Person or is merged into or consolidated with such Person or
any of its wholly-owned Subsidiaries or that Person's assets are acquired by
such Person or by any of its wholly-owned Subsidiaries shall be excluded; (c)
the effect of any change in accounting principles adopted by such Person or its
Subsidiaries after the date hereof shall be excluded, except, that, as to
------ ----
Borrower, the effect of such changes shall not be excluded if Borrower and Agent
shall agree in writing to amendments to the terms contained herein with respect
to Consolidated Net Income which are acceptable to both Borrower and Agent; (d)
net income shall exclude interest accruing, but not paid on indebtedness owing
to a Subsidiary or parent corporation of such Person, which is subordinated in
right of payment to the payment in full of the Obligations, on terms and
conditions acceptable to Agent; and (e) the net income (if positive) of any
Subsidiary to the extent that the declaration or payment of dividends or similar
distributions by such Subsidiary to such Person or to any other Subsidiary of
such Person is not at the time permitted by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to such Subsidiary shall be excluded. For
the purposes of this definition, (i) net income excludes any gain (but not loss)
together with any related Provision for Taxes for such gain (but not loss)
realized upon the sale or other disposition of any assets that are not sold in
the ordinary course of business (including, without limitation, dispositions
pursuant to sale and leaseback transactions) or of any Capital Stock of such
Person or a Subsidiary of such Person and any net income realized as a result of
changes in accounting principles or the application thereof to such Person, and
(ii) the term "Provision for Taxes" shall mean an amount equal to all taxes
imposed on or measured by net income, whether Federal, State, Provincial, county
or local, and whether foreign or domestic, that are paid or payable by any
Person in respect of any period in accordance with GAAP.
4
1.14 "Cost" shall mean, as to the Inventory as of any date, the cost of
such Inventory as of such date, determined on a first-in-first-out basis at the
lower of cost or market in accordance with GAAP.
1.15 "Credit Card Acknowledgments" shall mean, individually and
collectively, the agreements by Credit Card Issuers or Credit Card Processors
who are parties to Credit Card Agreements in favor of Lender and Agent
acknowledging the first priority security interest of Agent, for itself and the
benefit of Lender, in the monies due and to become due to Borrower (including,
without limitation, credits and reserves) under the Credit Card Agreements, and
agreeing to transfer all such amounts to the Blocked Accounts, as the same now
exist or may hereafter be amended, modified, supplemented, extended, renewed,
restated or replaced.
1.16 "Credit Card Agreements" shall mean all agreements now or hereafter
entered into by Borrower with any Credit Card Issuer or any Credit Card
Processor, as the same now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced, including, but not
limited to, the agreements set forth on Schedule 9.9 hereto.
1.17 "Credit Card Issuer" shall mean any Person (other than Borrower) who
issues or whose members issue credit cards, including, without limitation,
MasterCard or VISA bank credit or debit cards or other bank credit or debit
cards issued through MasterCard International, Inc., Visa, U.S.A., Inc. or Visa
International and American Express, Discover, Diners Club, Xxxxx Xxxxxxx and
other non-bank credit or debit cards, including, without limitation, credit or
debit cards issued by or through American Express Travel Related Services
Company, Inc. and Novus Services, Inc.
1.18 "Credit Card Processor" shall mean any servicing or processing agent
or any factor or financial intermediary who facilitates, services, processes or
manages the credit authorization, billing transfer and/or payment procedures
with respect to any of Borrower's sales transactions involving credit card or
debit card purchases by customers using credit cards or debit cards issued by
any Credit Card Issuer (including, but not limited to, National Data Payment
Systems, Inc.).
1.19 "Credit Card Receivables" shall mean collectively, (a) all present and
future rights of Borrower to payment from any Credit Card Issuer, Credit Card
Processor or other third party arising from sales of goods or rendition of
services to customers who have purchased such goods or services using a credit
or debit card and (b) all present and future rights of Borrower to payment from
any Credit Card Issuer, Credit Card Processor or other third party in connection
with the sale or transfer of Accounts arising pursuant to the sale of goods or
rendition of services to customers who have purchased such goods or services
using a credit card or a debit card, including, but not limited to, all amounts
at any time due or to become due from any Credit Card Issuer or Credit Card
Processor under the Credit Card Agreements or otherwise.
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1.20 "EBITDA" shall mean, as to any Person, with respect to any period, an
amount equal to: (a) the Consolidated Net Income of such Person and its
Subsidiaries for such period on a consolidated basis determined in accordance
with GAAP, plus (b) depreciation, amortization and other non-cash charges of
----
such Person and its Subsidiaries for such period (to the extent deducted in the
computation of Consolidated Net Income), all in accordance with GAAP (excluding
any non-cash charge that requires an accrual or reserve for cash charges for any
future period and all non-cash charges incurred in connection with the valuation
of inventory on a last-in-first-out basis), plus (c) Interest Expense (as
----
defined below) for such period (to the extent deducted in the computation of
Consolidated Net Income), plus (d) charges for Federal, State, local and foreign
----
income taxes of such Person and its Subsidiaries for such period (to the extent
deducted in the computation of Consolidated Net Income), all in accordance with
GAAP. For purposes of this definition, the term "Interest Expense" shall mean,
for any period, as to any Person and its Subsidiaries, as determined in
accordance with GAAP, total interest expense, whether paid or accrued (including
the interest component of capital lease obligations for such period), including,
without limitation, all bank fees, commissions, discounts and other fees and
charges owed with respect to letters of credit, but excluding (i) amortization
of discount and amortization of deferred financing fees and closing costs paid
in cash in connection with the transactions contemplated hereby, (ii) interest
paid in property other than cash and (iii) any other interest expense not
payable in cash.
1.21 "Eligible Inventory" shall mean Inventory consisting of finished goods
held for resale in the ordinary course of the business of Borrower that are
acceptable to Agent based on the criteria set forth below. In general, Eligible
Inventory shall not include (a) packaging and shipping materials; (b) supplies
used or consumed in Borrower's business; (c) Inventory at premises other than
those owned and controlled by Borrower, except for (i) Inventory at retail store
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locations of Borrower which are leased by it if either (A) Agent shall have
received a Landlord Agreement (as defined below) duly authorized, executed and
delivered by the owner and lessor of such premises or (B) if Agent has not
received such Landlord Agreement, then Agent shall have established an
Availability Reserve in respect of amounts due or to become due to the owner and
lessor of such retail store location (without limiting any other rights and
remedies of Agent under this Agreement or under the other Financing Agreements
with respect to the establishment of Availability Reserves or otherwise);
provided, that, Borrower shall use its best efforts to obtain the Landlord
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Agreement with respect to each of such locations and (ii) Inventory at other
locations of Borrower which are leased by it, if Agent shall have received an
agreement in writing from the owner and lessor of such premises in form and
substance satisfactory to Agent acknowledging the first priority security
interest in the Inventory of Agent, for itself and the benefit of Lender,
waiving security interests and claims by such person against the Inventory and
permitting Agent access to, and the right to remain on, the premises so as to
exercise the rights and remedies of Agent, for itself and the benefit of Lender,
and otherwise deal with the Collateral (a "Landlord Agreement"); (d) Inventory
subject to a security interest or lien in favor of any person other than Agent,
for itself and the benefit of Lender, except those permitted in this Agreement;
(e) xxxx and hold goods; (f) unserviceable, obsolete or slow moving Inventory
(except that so long as the amount of slow moving Inventory shall not increase
after
6
the date hereof disproportionately to increases in sales by Borrower and
increases in the total amount of Inventory, as determined by Agent in good
faith, such slow moving Inventory shall be considered Eligible Inventory to the
extent it otherwise satisfies the criteria set forth herein); (g) Inventory
which is not subject to the first priority, valid and perfected security
interest of Agent, for itself and the benefit of Lender; (h) damaged and/or
defective Inventory; (i) Inventory to be returned to vendors (except, that,
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Eligible Inventory may include Inventory to be returned to vendors of up to the
aggregate amount of $500,000 thereof, so long as it is in the same condition and
state as when first received by Borrower from such vendor); (j) Inventory
subject to deposits made by customers for sales of Inventory that has not been
delivered; (k) Inventory held after the applicable expiration date thereof; (l)
samples and (m) Inventory purchased or sold on consignment. General criteria
for Eligible Inventory may be established and revised from time to time by Agent
in good faith. Any Inventory which is not Eligible Inventory shall nevertheless
be part of the Collateral.
1.22 "Environmental Laws" shall mean all foreign, Federal, State and local
laws (including common law), legislation, rules, codes, licenses, permits
(including any conditions imposed therein), authorizations, judicial or
administrative decisions, injunctions or agreements between Borrower and any
governmental authority, (a) relating to pollution and the protection,
preservation or restoration of the environment (including air, water vapor,
surface water, ground water, drinking water, drinking water supply, surface
land, subsurface land, plant and animal life or any other natural resource), or
to human health or safety, (b) relating to the exposure to, or the use, storage,
recycling, treatment, generation, manufacture, processing, distribution,
transportation, handling, labeling, production, release or disposal, or
threatened release, of Hazardous Materials, or (c) relating to all laws with
regard to recordkeeping, notification, disclosure and reporting requirements
respecting Hazardous Materials. The term "Environmental Laws" includes (i) the
Federal Comprehensive Environmental Response, Compensation and Liability Act of
1980, the Federal Superfund Amendments and Reauthorization Act, the Federal
Water Pollution Control Act of 1972, the Federal Clean Water Act, the Federal
Clean Air Act, the Federal Resource Conservation and Recovery Act of 1976
(including the Hazardous and Solid Waste Amendments thereto), the Federal Solid
Waste Disposal Act and the Federal Toxic Substances Control Act, the Federal
Insecticide, Fungicide and Rodenticide Act, and the Federal Safe Drinking Water
Act of 1974, (ii) applicable state counterparts to such laws, and (iii) any
common law or equitable doctrine that may impose liability or obligations for
injuries or damages due to, or threatened as a result of, the presence of or
exposure to any Hazardous Materials.
1.23 "Equipment" shall mean all of Borrower's now owned and hereafter
acquired equipment, machinery, computers and computer hardware and software
(whether owned or licensed), vehicles, tools, furniture, fixtures, all
attachments, accessions and property now or hereafter affixed thereto or used in
connection therewith, and substitutions and replacements thereof, wherever
located.
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1.24 "ERISA" shall mean the United States Employee Retirement Income
Security Act of 1974, as the same now exists or may hereafter from time to time
be amended, modified, recodified or supplemented, together with all rules,
regulations and interpretations thereunder or related thereto.
1.25 "ERISA Affiliate" shall mean any person required to be aggregated with
Borrower or any of its Subsidiaries under Sections 414(b), 414(c), 414(m) or
414(o) of the Code.
1.26 "Eurodollar Rate" shall mean with respect to the Interest Period for a
Eurodollar Rate Loan, the interest rate per annum equal to the arithmetic
average of the rates of interest per annum (rounded upwards, if necessary, to
the next one-sixteenth (1/16) of one (1%) percent) at which Reference Bank is
offered deposits of United States dollars in the London interbank market (or
other Eurodollar Rate market selected by Borrower and approved by Agent) on or
about 9:00 a.m. (New York time) two (2) Business Days prior to the commencement
of such Interest Period in amounts substantially equal to the principal amount
of the Eurodollar Rate Loans requested by and available to Borrower in
accordance with this Agreement, with a maturity of comparable duration to the
Interest Period selected by Borrower.
1.27 "Eurodollar Rate Loans" shall mean any Loans or portion thereof on
which interest is payable based on the Adjusted Eurodollar Rate in accordance
with the terms hereof.
1.28 "Excess Availability" shall mean the amount, as determined by Agent,
calculated at any time, equal to: (a) the lesser of (i) the amount of the Loans
available to Borrower as of such time based on the applicable lending formula
multiplied by the Value of Eligible Inventory, as determined by Agent, and
subject to the sublimits and Availability Reserves from time to time established
by Agent hereunder and (ii) the Maximum Credit, minus (b) the sum of: (i) the
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amount of all then outstanding and unpaid Obligations, plus (ii) the aggregate
amount of all trade payables of Borrower which are more than thirty (30) days
past due as of such time, plus (iii) the amount of checks issued by Borrower to
pay trade payables, but not yet sent and the book overdraft of Borrower.
1.29 "Existing Agreements" shall mean, collectively, the agreements,
documents and instruments by Borrower with, to or in favor of Lender set forth
on Schedule 1.29 hereto.
1.30 "Existing Letters of Credit" shall mean, collectively, the letters of
credit issued prior to the date hereof by Lender for the account of Borrower set
forth on Schedule 1.30 hereto.
1.31 "Event of Default" shall mean the occurrence or existence of any event
or condition described in Section 11.1 hereof.
1.32 "Financing Agreements" shall mean, collectively, this Agreement and
all notes, guarantees, security agreements and other agreements, documents and
instruments now or at any time hereafter executed and/or delivered by Borrower
or any Obligor in connection with this
8
Agreement, as the same now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced.
1.33 "GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time as set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Boards which are applicable to the
circumstances as of the date of determination consistently applied, except that,
for purposes of Sections 10.14 hereof, GAAP shall be determined on the basis of
such principles in effect on the date hereof and consistent with those used in
the preparation of the audited financial statements delivered to Agent prior to
the date hereof.
1.34 "Information Certificate" shall mean the Information Certificate of
Borrower constituting Exhibit A hereto containing material information with
respect to Borrower, its business and assets provided by or on behalf of
Borrower to Agent in connection with the preparation of this Agreement and the
other Financing Agreements and the financing arrangements provided for herein.
1.35 "Inventory" shall mean all of Borrower's now owned and hereafter
existing or acquired raw materials, work in process, finished goods and all
other inventory of whatsoever kind or nature, wherever located.
1.36 "Interest Period" shall mean for any Eurodollar Rate Loan, a period of
approximately one (1), two (2), or three (3) months duration as Borrower may
elect, the exact duration to be determined in accordance with the customary
practice in the applicable Eurodollar Rate market; provided, that, Borrower may
-------- ----
not elect an Interest Period which will end after the last day of the then-
current term of this Agreement.
1.37 "Interest Rate" shall mean, as to Prime Rate Loans, the Prime Rate per
annum and, as to Eurodollar Rate Loans, a rate of two and one-half (2 1/2%)
percent per annum in excess of the Adjusted Eurodollar Rate (based on the
Eurodollar Rate applicable for the Interest Period selected by Borrower as in
effect three (3) Business Days after the date of receipt by Agent of the request
of Borrower for such Eurodollar Rate Loans in accordance with the terms hereof,
whether such rate is higher or lower than any rate previously quoted to
Borrower); provided, that, the Interest Rate shall be increased to the rate of
-------- ----
two (2%) percent per annum in excess of the Prime Rate as to Prime Rate Loans
and the rate of four and one-half (4 1/2%) percent per annum in excess of the
Adjusted Eurodollar Rate as to Eurodollar Rate Loans, at Agent's option, without
notice, (a) for the period on and after (i) the date of termination hereof and
until such time as all Obligations are indefeasibly paid in full
(notwithstanding entry of any judgment against Borrower), or (ii) the date of
the occurrence of any Event of Default, or act, condition or event which with
notice or passage of time or both would constitute an Event of Default, and for
so long as such Event of Default or other event is continuing as determined by
Agent and (b) on the Loans at any time outstanding in excess of the amounts
available to Borrower under Section 3.1
9
(whether or not such excess(es), arise or are made with or without Agent's
knowledge or consent and whether made before or after an Event of Default).
1.38 "Letter of Credit Accommodations" shall mean the letters of credit,
merchandise purchase or other guaranties which are from time to time either (a)
issued or opened by Issuer and arranged by Agent for the account of Borrower or
any Obligor or (b) with respect to which Agent has agreed to indemnify the
issuer or guaranteed to the issuer the performance by Borrower of its
obligations to such issuer (including, without limitation, the Existing Letters
of Credit).
1.39 "Material Adverse Effect" shall mean a material adverse effect on (a)
the condition (financial or otherwise), business, performance, operations or
properties of Borrower; (b) the legality, validity or enforceability of this
Agreement or any of the other Financing Agreements; (c) the legality, validity,
enforceability, perfection or priority of the security interests and liens of
Agent or Lender upon the Collateral or any other property which is security for
the Obligations; (d) the Collateral or any other property which is security for
the Obligations, or the value of the Collateral or such other property; (e) the
ability of Borrower to repay the Obligations or of Borrower or any Obligor to
perform its obligations under this Agreement or any of the other Financing
Agreements; or (f) the ability of Agent to enforce the Obligations or realize
upon the Collateral or otherwise with respect to the rights and remedies of
Agent and Lender under this Agreement or any of the other Financing Agreements.
1.40 "Loans" shall mean the loans now or hereafter made by Agent to or for
the benefit of Borrower on a revolving basis (involving advances, repayments and
readvances) as set forth in Section 3.1(a) hereof.
1.41 "Maximum Credit" shall mean $20,000,000, subject to increases up to
$60,000,000 as provided in Section 3.5 hereof.
1.42 "Net Off Peak Recovery Cost Percentage" shall mean the fraction,
expressed as a percentage, (a) the numerator of which is the amount equal to the
median recovery on the aggregate amount of the Inventory at such time on a
"going out of business sale" basis (assuming such sale is conducted other than
during the peak period from November 1 to December 31 of any year) as set forth
in the most recent acceptable appraisal of Inventory received by Agent in
accordance with Section 8.3, net of operating expenses, liquidation expenses and
commissions, and (b) the denominator of which is the original Cost of the
aggregate amount of the Inventory subject to appraisal.
1.43 "Net Peak Recovery Cost Percentage" shall mean the fraction, expressed
as a percentage, (a) the numerator of which is the amount equal to the median
recovery on the aggregate amount of the Inventory at such time on a "going out
of business sale" basis (assuming such sale is during the peak period from
November 1 to December 31 of any year) as set forth in the most recent
acceptable appraisal of Inventory received by Agent in accordance with Section
10
8.3, net of operating expenses, liquidation expenses and commissions, and (b)
the denominator of which is the original cost of the aggregate amount of the
Inventory subject to appraisal.
1.44 "Net Recovery Retail Percentage" shall mean the fraction, expressed as
a percentage, (a) the numerator of which is the amount equal to the median
recovery on the aggregate amount of the Inventory at such time on a "going out
of business sale" basis (assuming such sale is conducted other than during the
peak period from November 1 to December 31 of any year) as set forth in the most
recent acceptable appraisal of Inventory received by Agent in accordance with
Section 8.3, net of operating expenses, liquidation expenses and commissions,
and (b) the denominator of which is the original Retail Value of the aggregate
amount of the Inventory subject to appraisal.
1.45 "Obligations" shall mean any and all Loans, Letter of Credit
Accommodations and all other obligations, liabilities and indebtedness of every
kind, nature and description owing by Borrower to Agent and/or Lender and/or any
of their affiliates, including principal, interest, charges, fees, costs and
expenses, however evidenced, whether as principal, surety, endorser, guarantor
or otherwise, arising under this Agreement, any of the other Financing
Agreements or by operation of law in connection therewith, whether now existing
or hereafter arising, whether arising before, during or after the initial or any
renewal term of this Agreement or after the commencement of any case with
respect to Borrower under the United States Bankruptcy Code or any similar
statute (including, without limitation, the payment of interest and other
amounts which would accrue and become due but for the commencement of such case,
whether or not such amounts are allowed or allowable in whole or in part in such
case), whether direct or indirect, absolute or contingent, joint or several, due
or not due, primary or secondary, liquidated or unliquidated, secured or
unsecured, and however acquired by Agent or Lender.
1.46 "Obligor" shall mean any guarantor, endorser, acceptor, surety or
other person liable on or with respect to the Obligations or who is the owner of
any property which is security for the Obligations, other than Borrower.
1.47 "Participant" shall have the meaning set forth in Section 14.5 hereof.
1.48 "Payment Account" shall have the meaning set forth in Section 7.3
hereof.
1.49 "Permits" shall have the meaning set forth in Section 9.7 hereof.
1.50 "Permitted Holders" shall mean the persons listed on Schedule 1.50
hereto.
1.51 "Person" or "person" shall mean any individual, sole proprietorship,
partnership, corporation (including, without limitation, any corporation which
elects subchapter S status under the Code), limited liability company, limited
liability partnership, business trust, unincorporated association, joint stock
corporation, trust, joint venture or other entity or any government or any
agency or instrumentality or political subdivision thereof.
11
1.52 "Prime Rate" shall mean the rate from time to time publicly announced
by Lender Bank, N.A., or its successors, at its office in Philadelphia,
Pennsylvania, as its prime rate, whether or not such announced rate is the best
rate available at such bank.
1.53 "Prime Rate Loans" shall mean any Loans or portion thereof on which
interest is payable based on the Prime Rate in accordance with the terms hereof.
1.54 "Qualified Public Offering" shall mean any bona fide, firm commitment,
---- ----
underwritten offering by Borrower of its Capital Stock to the public pursuant to
an effective registration statement under the Securities Act, as then in effect,
or any comparable statement under any similar federal statute then in force, the
net cash proceeds of which received by Borrower are not less $20,000,000, after
deducting underwriting discounts and commissions, and all offering expenses and
other expenses related thereto.
1.55 "Real Property" shall mean all now owned and hereafter acquired real
property of Borrower, including leasehold interests, together with all
buildings, structures, and other improvements located thereon and all licenses,
easements and appurtenances relating thereto, wherever located.
1.56 "Records" shall mean all of Borrower's present and future books of
account of every kind or nature, purchase and sale agreements, invoices, ledger
cards, bills of lading and other shipping evidence, statements, correspondence,
memoranda, credit files and other data relating to the Collateral or any account
debtor, together with the tapes, disks, diskettes and other data and software
storage media and devices, file cabinets or containers in or on which the
foregoing are stored (including any rights of Borrower with respect to the
foregoing maintained with or by any other person).
1.57 "Reference Bank" shall mean CoreStates Bank, N.A. or such other bank
as Agent may designate from time to time.
1.58 "Renewal Date" shall have the meaning set forth in Section 14.1
hereof.
1.59 "Retail Value" shall mean, as to the Inventory as of any date, the
then current retail sales price of such Inventory as of such date, net of
markdowns from the original retail sales price or ticketed sales price with
respect thereto.
1.60 "Securities Act" shall mean the Securities Act of 1933, as the same
now exists or may hereafter from time to time be amended, modified, recodified
or supplemented, together with all rules, regulations and interpretations
thereunder or related thereto.
1.61 "Securities Exchange Act" shall mean the Securities Exchange Act of
1934, as the same now exists or may hereafter from time to time be amended,
modified, recodified or
12
supplemented, together with all rules, regulations and interpretations
thereunder or related thereto.
1.62 "Subsidiary" shall mean, as to any Person, any corporation or other
entity of which securities or other ownership interests having ordinary voting
power to elect a majority of the board of directors or other persons performing
similar functions are at the time directly or indirectly owned or controlled by
such Person, one or more of the other subsidiaries of such Person or any
combination thereof.
1.63 "Value" shall mean, as determined by Agent in good faith, with respect
to Inventory, the lower of (a) Cost or (b) market value.
SECTION 2. ACKNOWLEDGEMENT AND RESTATEMENT
-------------------------------
2.1 Existing Obligations. Borrower hereby acknowledges, confirms and
--------------------
agrees that Borrower is indebted to Lender for Loans to Borrower under the
Existing Agreements, as of the close of business on October 8, 1997, in the
aggregate principal amount of $3,150,000 and the aggregate amount of
$1,495,913.40 in respect of Letter of Credit Accommodations, together with all
interest accrued and accruing thereon (to the extent applicable), and all costs,
expenses and other charges relating thereto, all of which are unconditionally
owing by Borrower to Lender, without offset, defense or counterclaim of any
kind, nature or description whatsoever.
2.2 Acknowledgement of Security Interest. Borrower hereby acknowledges,
------------------------------------
confirms and agrees that (a) Agent, for itself and the benefit of Lender, has
and shall continue to have a security interest in and lien upon the Collateral
heretofore granted to Agent as assignee of Lender, as well as any Collateral
granted hereunder or under the other Financing Agreements or otherwise granted
to or held by Agent or Lender, and (b) the liens and security interests of Agent
in the Collateral shall be deemed to be continuously granted and perfected from
the earliest date of the granting and perfection of such liens and security
interests, whether directly to Agent, for itself and the benefit of Lender, or
to Agent, for itself and the benefit of Lender, as assignee of Lender or
otherwise.
2.3 Existing Agreements. Borrower hereby acknowledges, confirms and agrees
-------------------
that: (a) the Existing Agreements have been duly executed and delivered by
Borrower and are in full force and effect as of the date hereof; (b) the
agreements and obligations of Borrower contained in the Existing Agreements
constitute the legal, valid and binding obligations of Borrower enforceable
against it in accordance with its terms and Borrower has no valid defense to the
enforcement of such obligations; and (c) Agent and Lender are entitled to all of
the rights, remedies and benefits provided for in or arising pursuant to the
Existing Agreements.
2.4 Restatement.
-----------
13
(a) Except as otherwise stated in Section 2.2 hereof and this Section
2.4, as of the date hereof, the terms, conditions, agreements, covenants,
representations and warranties set forth in the Existing Agreements are hereby
amended and restated in their entirety, and as so amended and restated, replaced
and superseded, by the terms, conditions, agreements, covenants, representations
and warranties set forth in this Agreement, except that nothing herein or in the
------ ----
other Financing Agreements shall impair or adversely affect the continuation of
the liability of Borrower for the Obligations heretofore incurred and the
security interests, liens and other interests in the Collateral heretofore
granted, pledged and/or assigned by Borrower to Agent, for itself and the
benefit of Lender (whether directly to Agent, for itself and the benefit of
Lender, or to Agent, for itself and the ratable benefit of Lender, as assignee
of Lender or otherwise).
(b) The amendment and restatement contained herein shall not, in any
manner, be construed to constitute payment of, or impair, limit, cancel or
extinguish, or constitute a novation in respect of any of the obligations,
liabilities and indebtedness of Borrower evidenced by or arising under the
Existing Agreements, and the liens and security interests securing such other
obligations, liabilities and indebtedness, which shall not in any manner be
impaired, limited, terminated, waived or released.
(c) All loans, advances and other financial accommodations under the
Existing Agreements and all other Obligations of Borrower to Lender outstanding
and unpaid as of the date hereof pursuant to the Existing Agreements or
otherwise shall be deemed Obligations of Borrower pursuant to the terms hereof,
and shall constitute and be deemed Loans to Borrower hereunder to the same
extent and in the same amount as such Obligations were deemed to be under the
Existing Agreements.
SECTION 3. CREDIT FACILITIES
-----------------
3.1 Loans.
-----
(a) Subject to, and upon the terms and conditions contained herein,
Lender agrees to fund the Loans in amounts requested by Borrower up to the
amount equal to:
(i) the lesser of the Maximum Credit (as then in effect) or
(A) during the period commencing on December 1 of each calendar
year through and including June 30 of the following calendar
year (other than the period commencing on June 1, 1998
through and including June 30, 1998), the lesser of: (1)
fifty-five (55%) percent multiplied by the Value of the
Eligible Inventory or (2) eighty-five (85%) percent of the
Net Off Peak Recovery Cost Percentage multiplied by the Cost
of Eligible Inventory, or
14
(B) during the period commencing on June 1, 1998 through and
including June 30, 1998, the lesser of: (1) fifty-five (55%)
percent multiplied by the Value of the Eligible Inventory or
(2) eighty-five (85%) percent of the Net Off Peak Recovery
Cost Percentage multiplied by the Cost of Eligible
Inventory, except, that, such percentage shall be ninety-
------ ----
five (95%) percent of the Net Off Peak Recovery Cost
Percentage if each of the following conditions is satisfied:
(aa) no Event of Default, or act, condition or event which
with notice or passage of time would constitute an Event of
Default shall exist or have occurred, (bb) as of April 30,
1998, the Tangible Net Worth of Borrower shall be not less
than $16,500,000, and (cc) as of April 30, 1998, the EBITDA
of Borrower for the immediately preceding twelve (12) month
period shall be not less than $3,300,000,
(C) during the period commencing on July 1 of each calendar year
through and including July 31 of such calendar year, the
least of: (1) fifty-five (55%) percent multiplied by the
Value of Eligible Inventory, (2) one hundred (100%) percent
of the Net Off Peak Recovery Cost Percentage multiplied by
the Cost of Eligible Inventory or (3) seventy-five (75%)
percent of the Net Peak Recovery Cost Percentage multiplied
by the Cost of Eligible Inventory, and
(D) during the period commencing on August 1 of each calendar
year through and including November 30 of such calendar
year, the lesser of: (1) sixty (60%) percent multiplied by
the Value of Eligible Inventory or (2) eighty (80%) percent
of the Net Peak Recovery Cost Percentage multiplied by the
Cost of Eligible Inventory; minus
-----
(ii) the Availability Reserves.
(b) Without limiting any of the rights of Agent or Lender pursuant to
Section 3.1(d) below or otherwise, on each date when any reduction to any of the
lending formulas set forth in Section 3.1(a) above becomes effective, regardless
of the amounts of Eligible Inventory, Borrower agrees absolutely and
unconditionally to automatically and without demand make a payment to Agent, for
the benefit of Lender, in respect of the Loans, in an amount equal to the
excess, if any, of the aggregate unpaid principal amount of the Loans over the
amounts available to Borrower pursuant to the lending formula as so reduced.
Each such payment in respect of the Loans pursuant to this Section 3.1(b) shall
be without premium or penalty, except to the extent that the outstanding balance
of the Loans after such payment may result in any fee under Section 14.1(c)
hereof. All interest accrued on the principal amount of the Loans paid pursuant
to this
15
Section 3.1(b) may be charged to the loan account of Borrower, at Agent's
option, on the date of such payment.
(c) Except in Agent's discretion, the aggregate amount of the Loans
and the Letter of Credit Accommodations outstanding at any time shall not exceed
the Maximum Credit (as then in effect). In the event that the outstanding
amount of the Loans, or the aggregate amount of the outstanding Loans and Letter
of Credit Accommodations, exceed the amounts available under the lending
formulas, the sublimits for Letter of Credit Accommoda tions set forth in
Section 3.2(d) or the Maximum Credit, as applicable, such event shall not limit,
waive or otherwise affect any rights of Agent or Lender in that circumstance or
on any future occasions and Borrower shall, upon demand by Agent, which may be
made at any time or from time to time, immediately repay to Agent, for the
benefit of Lender, the entire amount of any such excess(es) for which payment is
demanded.
3.2 Letter of Credit Accommodations.
-------------------------------
(a) Subject to, and upon the terms and conditions contained herein,
at the request of Borrower, Agent agrees, for the risk of Lender, to provide or
arrange for Letter of Credit Accommodations for the account of Borrower
containing terms and conditions acceptable to Agent and the issuer thereof. Any
payments made by Agent or Lender to any issuer thereof and/or related parties in
connection with the Letter of Credit Accommodations shall constitute additional
Loans to Borrower pursuant to this Section 3.
(b) In addition to any charges, fees or expenses charged by Issuer in
connection with the Letter of Credit Accommodations, Borrower shall pay to
Agent, for the benefit of Lender, a letter of credit fee at a rate equal to one
and one-half (1 1/2%) percent per annum on the daily outstanding balance of the
Letter of Credit Accommodations (other than the Existing Letters of Credit) for
the immediately preceding month (or part thereof), payable in arrears as of the
first day of each succeeding month, except that Borrower shall pay to Agent such
letter of credit fee, at Agent's option, without notice, at a rate equal to
three and one-half (3 1/2%) percent per annum for (i) the period on and after
the date of termination hereof until Agent, for the benefit of Lender, has
received full and final payment of all Obligations (notwithstanding entry of a
judgment against Borrower) and (ii) the period on and after the date of the
occurrence of any Event of Default or act, condition or event which with notice
or passage of time or both would constitute an Event of Default and for so long
as such Event of Default is continuing as determined by Agent. Such letter of
credit fee shall be calculated on the basis of a three hundred sixty (360) day
year and actual days elapsed and the obligation of Borrower to pay such fee
shall survive the termination or non-renewal of this Agreement.
(c) No Letter of Credit Accommodations shall be available unless on
the date of the proposed issuance of any Letter of Credit Accommodations, the
Loans available to Borrower (subject to the Maximum Credit and any Availability
Reserves) are equal to or greater than (i) if the proposed Letter of Credit
Accommodation is for the purpose of purchasing Eligible
16
Inventory, the sum of (A) the percentage equal to one hundred (100%) percent
minus the then applicable percentage set forth in Section 3.1(a)(i)(A) above
multiplied by the Value of such Eligible Inventory, plus (B) freight, taxes,
duty and other amounts that Agent estimates must be paid in connection with such
Inventory upon arrival and for delivery to one of Borrower's locations for
Eligible Inventory; and (ii) if the proposed Letter of Credit Accommodation is
for any other purpose an amount equal to one hundred (100%) percent of the face
amount thereof and all other commitments and obligations made or incurred by
Agent or Lender with respect thereto. Effective on the issuance of each Letter
of Credit Accommodations, an Availability Reserve shall be established in the
applicable amount set forth in this Section 3.2(c)(i) or Section 3.2(c)(ii).
(d) Except in Agent's discretion, the amount of all outstanding
Letter of Credit Accommodations for all other purposes and all other commitments
and obligations made or incurred by Agent or Lender in connection therewith,
shall not at any time exceed $7,500,000. At any time an Event of Default exists
or has occurred and is continuing, upon Agent's request, Borrower will either
furnish cash collateral to secure the reimbursement obligations to the issuer in
connection with any Letter of Credit Accommodations or furnish cash collateral
to Agent, for itself and the benefit of Lender, for the Letter of Credit
Accommodations, and in either case, the Loans otherwise available to Borrower
shall not be reduced as provided in Section 3.2(c) to the extent of such cash
collateral.
(e) Borrower shall indemnify and hold Agent and Lender harmless from
and against any and all losses, claims, damages, liabilities, costs and expenses
which Agent or Lender may suffer or incur in connection with any Letter of
Credit Accommodations and any documents, drafts or acceptances relating thereto,
including, but not limited to, any losses, claims, damages, liabilities, costs
and expenses due to any action taken by any issuer or correspondent with respect
to any Letter of Credit Accommodation, except for any losses, claims, damages,
liabilities, costs and expenses as a result of the gross negligence or wilful
misconduct of Lender as determined pursuant to a final non-appealable order of a
court of competent jurisdiction. Borrower assumes all risks with respect to the
acts or omissions of the drawer under or beneficiary of any Letter of Credit
Accommodation and for such purposes the drawer or beneficiary shall be deemed
Borrower's agent. Borrower assumes all risks for, and agrees to pay, all
foreign, Federal, State and local taxes, duties and levies relating to any goods
subject to any Letter of Credit Accommodations or any documents, drafts or
acceptances thereunder. Borrower hereby releases and holds Agent and Lender
harmless from and against any acts, waivers, errors, delays or omissions,
whether caused by Borrower, by any issuer or correspondent or otherwise with
respect to or relating to any Letter of Credit Accommodation, except for any
losses, claims, damages, liabilities, costs and expenses as a result of the
gross negligence or wilful misconduct of Lender as determined pursuant to final
non-appealable order of a court of competent jurisdiction. The provisions of
this Section 3.2(e) shall survive the payment of Obligations and the termination
or non-renewal of this Agreement.
17
(f) Nothing contained herein shall be deemed or construed to grant
Borrower any right or authority to pledge the credit of Agent or Lender in any
manner. Agent and Lender shall have no liability of any kind with respect to
any Letter of Credit Accommodation provided by an issuer other than Agent unless
Agent has duly executed and delivered to such issuer the application or a
guarantee or indemnification in writing with respect to such Letter of Credit
Accommodation. Borrower shall be bound by any interpretation made in good faith
by Agent, any other issuer or correspondent under or in connection with any
Letter of Credit Accommodation or any documents, drafts or acceptances
thereunder, notwithstanding that such interpretation may be inconsistent with
any instructions of Borrower.
(i) At any time an Event of Default exists or has occurred and is
continuing, Agent shall have the sole and exclusive right and authority to, and
Borrower shall not (A) approve or resolve any questions of non-compliance of
documents, (B) give any instructions as to acceptance or rejection of any
documents or goods or (C) execute any and all applications for steamship or
airway guaranties, indemnities or delivery orders.
(ii) At any time prior to an Event of Default, Agent shall have the
right and authority, with the consent of Borrower (except that such consent
shall not be required if in Agent's good faith determination it is necessary or
desirable to avoid any liability of Agent or Lender), and at any time on or
after an Event of Default exists or has occurred and is continuing, Agent shall
have the sole and exclusive right and authority to, without the consent of
Borrower, (A) grant any extensions of the maturity of, time of payment for, or
time of presentation of, any drafts, acceptances, or documents, and (B) agree to
any amendments, renewals, extensions, modifications, changes or cancellations of
any of the terms or conditions of any of the applications, Letter of Credit
Accommodations, or documents, drafts or acceptances thereunder or any letters of
credit included in the Collateral.
(iii) Agent may take such actions referred to above either in
its own name or in Borrower's name.
(g) Any rights, remedies, duties or obligations granted or undertaken
by Borrower to any issuer or correspondent in any application for any Letter of
Credit Accommodation, or any other agreement in favor of any issuer or
correspondent relating to any Letter of Credit Accommodation, shall be deemed to
have been granted or undertaken by Borrower to Agent, for the benefit of Lender.
Any duties or obligations undertaken by Agent to any issuer or correspondent in
any application for any Letter of Credit Accommodation, or any other agreement
by Agent in favor of any issuer or correspondent relating to any Letter
of Credit Accommodation, shall be deemed to have been undertaken by Borrower to
Agent, for the benefit of Lender, and to apply in all respects to Borrower.
3.3 Availability Reserves. All Loans otherwise available to Borrower
---------------------
pursuant to the lending formulas and subject to the Maximum Credit and other
applicable limits hereunder, shall be subject to Agent's continuing right to
establish and revise Availability Reserves. Without
18
limiting any other rights or remedies of Agent and Lender under this Agreement
or any of the other Financing Agreements with respect to the establishment of
Availability Reserves or otherwise, Agent may establish and revise Availability
Reserves to reflect: (a) inventory shrinkage; (b) reserves in respect of
markdowns, "kick-outs" (arising from the sale of items of Inventory which are
not reflected in the perpetual inventory records maintained by Borrower) and
cost variances (pursuant to discrepancies between the purchase order price of
Inventory and the actual cost thereof); (c) the aggregate amount of deposits, if
any, received by Borrower from its retail customers in respect of unfilled
orders for merchandise; (d) amounts due or to become due in respect of sales,
use and/or withholding taxes; (e) any rental payments, service charges or other
amounts due to lessors of real or personal property to the extent Inventory or
Records are located in or on property or such Records are needed to monitor or
otherwise deal with the Collateral or (f) amounts owing by Borrower to Credit
Card Issuers or Credit Card Processors in connection with the Credit Card
Agreements.
3.4 Maximum Credit.
--------------
(a) At any time and from time to time after the date hereof, upon not
less than thirty (30) days, and not more than forty-five (45) days, prior
written notice to Agent, (i) prior to July 1, 1998, Borrower may request that
the Maximum Credit increase from $20,000,000 to up to $35,000,000 and (ii) after
July 1, 1998, Borrower may request that the Maximum Credit increase from the
amount of the Maximum Credit then in effect up to an amount equal to
$60,000,000, provided, that, as to any request whether pursuant to clause (i) or
-------- ----
clause (ii) above, (A) each such increase shall be in an amount not less than
$7,500,000, (B) Borrower shall not make more than four (4) such requests and (C)
any such request from Borrower shall be irrevocable.
(b) Within thirty (30) days of receipt by Agent of any written
request by Borrower for an increase in the Maximum Credit in accordance with
Section 3.5(a) above prior to July 1, 1998, Agent shall give Borrower written
notice of the increase in the Maximum Credit to the amount so requested by
Borrower (which increase shall be effective on the date of such notice by Agent
to Borrower), provided, that, (i) in each case, each of the following conditions
-------- ----
is satisfied, as determined by Agent: (A) Agent shall have received such
request by no later than July 1, 1998, (B) as of the effective date of such
increase, no Event of Default or act, condition or event which with notice or
passage of time or both would constitute an Event of Default shall exist or have
occurred and (C) Agent shall have received, for the benefit of Lender, payment
from Borrower in cash or other immediately available funds of the line increase
fee in respect of such increase as provided in Section 4.5 below, (ii) the
giving of such notice by Agent to Borrower of the increase in the Maximum Credit
shall not be deemed a waiver of any Event of Default which may exist or have
occurred on or before the date of such notice or of any of Agent's or Lender's
rights or remedies with respect thereto, (iii) Agent shall not be required to
give such notice to Borrower of the increase in the Maximum Credit unless in the
determination of Agent, each of the conditions set forth above are satisfied,
and (iv) as of the effective date of any such increase in the Maximum Credit,
each reference to the term Maximum Credit herein and in any of the other
Financing Agreements shall be deemed amended to mean the amount of
19
the Maximum Credit specified in the most recent written notice from Agent to
Borrower of the increase in the Maximum Credit.
(c) Within thirty (30) days of receipt by Agent of any written
request by Borrower for an increase in the Maximum Credit in accordance with
Section 3.5(a)(ii) above after July 1, 1998, Agent shall give Borrower written
notice of the increase in the Maximum Credit to the amount so requested by
Borrower (which increase shall be effective on the date of such notice by Agent
to Borrower), provided, that, (i) each of the following conditions is satisfied
-------- ----
as determined by Agent: (A) as of the effective date of such increase, no Event
of Default, or act, condition or event, which with notice or passage of time or
both would constitute an Event of Default shall exist or have occurred, (B)
Agent shall have received the audited consolidated financial statements of
Borrower and its Subsidiaries, together with the unqualified opinion of
independent certified public accounts with respect thereto, in accordance with
the terms of Section 10.6(a) hereof for the fiscal year ended immediately prior
to the date of the receipt by Agent of the written request for such increase
from Borrower, (C) the Consolidated Net Income of Borrower and its Subsidiaries
for such fiscal year calculated based on such audited consolidated financial
statements shall be not less than $500,000, (D) as of the date of such increase
and after giving effect thereto, Excess Availability shall be not less than
$5,000,000, (E) the inventory accounting and computer systems and controls shall
in all respects be reasonably satisfactory to Agent, (F) Agent shall have
received, for the benefit of Lender, payment from Borrower in cash or other
immediately available funds of the line increase fee in respect of such increase
as provided in Section 4.5 below, and (G) Agent shall have received an amendment
to this Agreement, in form and substance reasonably satisfactory to Agent,
changing the amount of the Adjusted Tangible Net Worth of Borrower which
Borrower is required to maintain pursuant to Section 10.14 hereof, to such
amount as Agent shall reasonably determine, duly authorized, executed and
delivered by Borrower, (ii) the giving of such notice by Agent to Borrower of
the increase in the Maximum Credit shall not be deemed a waiver of any Event of
Default which may exist or have occurred on or before the date of such notice or
of any of Agent's or Lender's rights or remedies with respect thereto, (iii)
Agent shall not be required to give such notice to Borrower of the increase in
the Maximum Credit unless in the determination of Agent, each of the conditions
set forth above are satisfied, and (iv) as of the effective date of any such
increase in the Maximum Credit, each reference to the term Maximum Credit herein
and in any of the other Financing Agreements shall be deemed amended to mean the
amount of the Maximum Credit specified in the most recent notice from Agent to
Borrower of the increase in the Maximum Credit.
SECTION 4. INTEREST AND FEES
-----------------
4.1 Interest.
--------
(a) Borrower shall pay to Agent, for the benefit of Lender, interest
on the outstanding principal amount of the non-contingent Obligations at the
Interest Rate. All interest
20
accruing hereunder on and after the date of any Event of Default or termination
or non-renewal hereof shall be payable on demand.
(b) Borrower may from time to time request that Prime Rate Loans be
converted to Eurodollar Rate Loans or that any existing Eurodollar Rate Loans
continue for an additional Interest Period. Such request from Borrower shall
specify the amount of the Prime Rate Loans which will constitute Eurodollar Rate
Loans (subject to the limits set forth below) and the Interest Period to be
applicable to such Eurodollar Rate Loans. Subject to the terms and conditions
contained herein, three (3) Business Days after receipt by Agent of such a
request from Borrower, such Prime Rate Loans shall be converted to Eurodollar
Rate Loans or such Eurodollar Rate Loans shall continue, as the case may be,
provided, that, as of such date each of the following conditions is satisfied as
-------- ----
determined by Lender: (i) no Event of Default, or act, condition or event which
with notice or passage of time or both would constitute an Event of Default
exists or has occurred and is continuing, (ii) Borrower shall have complied with
such customary procedures as are established by Agent and specified by Agent to
Borrower from time to time for requests by Borrower for Eurodollar Rate Loans,
(iii) no more than five (5) Interest Periods may be in effect at any one time,
(v) the aggregate amount of the Eurodollar Rate Loans must be in an amount not
less than $5,000,000 or an integral multiple of $1,000,000 in excess thereof,
(iv) the maximum amount of the Eurodollar Rate Loans at any time requested by
Borrower shall not exceed the amount equal to ninety-five (95%) percent of the
lowest principal amount of the Loans which it is anticipated will be outstanding
during the applicable Interest Period, in each case as determined by Agent (but
with no obligation of Agent and Lender to make such Loans) and (vii) Agent shall
have determined that the Interest Period or Adjusted Eurodollar Rate is
available to Agent through the Reference Bank and can be readily determined as
of the date of the request for such Eurodollar Rate Loan by Borrower. Any
request by Borrower to convert Prime Rate Loans to Eurodollar Rate Loans or to
continue any existing Eurodollar Rate Loans shall be irrevocable.
Notwithstanding anything to the contrary contained herein, Agent, Lender and
Reference Bank shall not be required to purchase United States Dollar deposits
in the London interbank market or other applicable Eurodollar Rate market to
fund any Eurodollar Rate Loans, but the provisions hereof shall be deemed to
apply as if Agent, Lender and Reference Bank had purchased such deposits to fund
the Eurodollar Rate Loans.
(c) Any Eurodollar Rate Loans shall automatically convert to Prime
Rate Loans upon the last day of the applicable Interest Period, unless Agent has
received and approved a request to continue such Eurodollar Rate Loan at least
three (3) Business Days prior to such last day in accordance with the terms
hereof. Any Eurodollar Rate Loans shall, at Agent's option, upon notice by Agent
to Borrower, convert to Prime Rate Loans in the event that (i) this Agreement
shall terminate, or (ii) the aggregate principal amount of the Prime Rate Loans
which have previously been converted to Eurodollar Rate Loans or existing
Eurodollar Rate Loans continued, as the case may be, at the beginning of an
Interest Period shall at any time during such Interest Period exceed either (A)
the aggregate principal amount of the Loans then outstanding, or (B) the Loans
then available to Borrower under Section 3 hereof. Borrower shall pay to Agent,
for the benefit of Lender, upon demand by Agent (or Agent may, at its option,
charge any
21
loan account of Borrower) any amounts required to compensate Agent, Lender, the
Reference Bank or any Participant for any loss (including loss of anticipated
profits), cost or expense incurred by such person, as a result of the conversion
of Eurodollar Rate Loans to Prime Rate Loans pursuant to any of the foregoing
prior to the end of the applicable Interest Period.
(d) Interest shall be payable by Borrower to Agent monthly in arrears
not later than the first day of each calendar month and shall be calculated on
the basis of a three hundred sixty (360) day year and actual days elapsed. The
interest rate on non-contingent Obligations (other than Eurodollar Rate Loans)
shall increase or decrease by an amount equal to each increase or decrease in
the Prime Rate effective on the first day of the month after any change in such
Prime Rate is announced based on the Prime Rate in effect on the last day of the
month in which any such change occurs. In no event shall charges constituting
interest payable by Borrower to Agent exceed the maximum amount or the rate
permitted under any applicable law or regulation, and if any such part or
provision of this Agreement is in contravention of any such law or regulation,
such part or provision shall be deemed amended to conform thereto.
4.2 Closing Fee. Borrower shall pay to Agent, for the benefit of Lender,
-----------
as a closing fee the amount of $66,000, which shall be fully earned as of the
date hereof and $33,000 of which shall be payable on the date hereof and $33,000
of which shall be payable on the first anniversary of the date hereof, provided,
--------
that, such amount shall become immediately due and payable, without notice or
----
demand, at Agent's option, upon the occurrence of an Event of Default or upon
the termination or non-renewal hereof.
4.3 Servicing Fee. Borrower shall pay to Agent, for its own account,
-------------
quarterly a servicing fee in an amount equal to $10,000 for each fiscal quarter
of Borrower (or part thereof) while this Agreement is in effect and for so long
thereafter as any of the Obligations are outstanding, which fee shall be fully
earned as of and payable in advance on the date hereof and on the first day of
each fiscal quarter after the date hereof.
4.4 Unused Line Fee. Borrower shall pay to Agent, for the benefit of
---------------
Lender, monthly an unused line fee at a rate equal to three-eighths of one
(3/8%) percent per annum calculated upon the amount by which (a) the amount
equal to eighty (80%) percent of the Maximum Credit as in effect on the last day
of the immediately preceding month exceeds (b) the average daily principal
balance of the outstanding Loans and Letter of Credit Accommodations during the
immediately preceding month (or part thereof) while this Agreement is in effect
and for so long thereafter as any of the Obligations are outstanding, which fee
shall be payable on the first day of each month in arrears.
22
4.5 Line Increase Fee. In consideration of each increase in the Maximum
-----------------
Credit as provided for in Section 3.5 hereof, Borrower shall, on the effective
date of any increase in the Maximum Credit, pay to Agent, for the benefit of
Lender, a line increase fee in the amount equal to one-third (1/3%) percent of
the amount of each such increase in the Maximum Credit, which fee shall be fully
earned and payable as of the date of such increase.
4.6 Changes in Laws and Increased Costs of Loans.
--------------------------------------------
(a) Notwithstanding anything to the contrary contained herein, all
Eurodollar Rate Loans shall, upon notice by Agent to Borrower, convert to Prime
Rate Loans in the event that (i) any change in applicable law or regulation (or
the interpretation or administration thereof) shall either (A) make it unlawful
for Lender, Reference Bank or any Participant to make or maintain Eurodollar
Rate Loans or to comply with the terms hereof in connection with the Eurodollar
Rate Loans, or (B) shall result in the increase in the costs to Lender,
Reference Bank or any Participant of making or maintaining any Eurodollar Rate
Loans by an amount deemed by Agent to be material, or (C) reduce the amounts
received or receivable by Agent for the benefit of Lender in respect thereof, by
an amount deemed by Agent to be material or (ii) the cost to Lender, Reference
Bank or any Participant of making or maintaining any Eurodollar Rate Loans shall
otherwise increase by an amount deemed by Agent to be material. Borrower shall
pay to Agent, for the benefit of Lender, upon demand by Agent (or Agent may, at
its option, charge any loan account of Borrower) any amounts required to
compensate Lender, the Reference Bank or any Participant for any loss (including
loss of anticipated profits), cost or expense incurred by such person as a
result of the foregoing, including, without limitation, any such loss, cost or
expense incurred by reason of the liquidation or reemployment of deposits or
other funds acquired by such person to make or maintain the Eurodollar Rate
Loans or any portion thereof. A certificate of Agent setting forth the basis
for the determination of such amount necessary to compensate Agent as aforesaid
shall be delivered to Borrower and shall be conclusive, absent manifest error.
(b) If any payments or prepayments in respect of the Eurodollar Rate
Loans are received by Agent other than on the last day of the applicable
Interest Period (whether pursuant to acceleration, upon maturity or otherwise),
including any payments pursuant to the application of collections under Section
7.3 or any other payments made with the proceeds of Collateral, Borrower shall
pay to Agent upon demand by Agent (or Agent may, at its option, charge any loan
account of Borrower) any amounts required to compensate Lender, the Reference
Bank or any Participant for any additional loss (including loss of anticipated
profits), cost or expense incurred by such person as a result of such prepayment
or payment, including, without limitation, any loss, cost or expense incurred by
reason of the liquidation or reemployment of deposits or other funds acquired by
such person to make or maintain such Eurodollar Rate Loans or any portion
thereof.
SECTION 5. CONDITIONS PRECEDENT
--------------------
23
5.1 Conditions Precedent to Initial Loans and Letter of Credit
----------------------------------------------------------
Accommodations. Each of the following is a condition precedent to Lender (or
--------------
Agent on behalf of Lender) making the initial Loans and providing the initial
Letter of Credit Accommodations hereunder:
(a) Agent shall have received evidence, in form and substance
satisfactory to Agent, that Agent has valid perfected and first priority
security interests in and liens upon the Collateral and any other property which
is intended to be security for the Obligations or the liability of any Obligor
in respect thereof, subject only to the security interests and liens permitted
herein or in the other Financing Agreements;
(b) all requisite corporate action and proceedings in connection with
this Agreement and the other Financing Agreements shall be satisfactory in form
and substance to Agent, and Agent shall have received all information and copies
of all documents, including, without limitation, records of requisite corporate
action and proceedings which Agent may have requested in connection therewith,
such documents where requested by Agent or its counsel to be certified by
appropriate corporate officers or governmental authorities;
(c) no material adverse change shall have occurred in the assets,
business or prospects of Borrower since the date of Agent's latest field
examination and no change or event shall have occurred which would impair the
ability of Borrower or any Obligor to perform its obligations hereunder or under
any of the other Financing Agreements to which it is a party or of Agent to
enforce the Obligations or realize upon the Collateral;
(d) Agent shall have completed a field review of the Records and such
other information with respect to the Collateral as Agent may require to
determine the amount of Loans available to Borrower including, without
limitation, current agings of receivables, current perpetual inventory records
and/or roll-forwards of Inventory through the date of closing, together with
such supporting documentation as may be necessary or appropriate, and other
documents and information that will enable Agent to accurately identify and
verify the Collateral, the results of which shall be satisfactory to Agent, not
more than three (3) Business Days prior to the date hereof;
(e) Agent shall have received, in form and substance satisfactory to
Agent, all consents, waivers, acknowledgments and other agreements from third
persons which Agent may deem necessary or desirable in order to permit, protect
and perfect its security interests in and liens upon the Collateral or to
effectuate the provisions or purposes of this Agreement and the other Financing
Agreements, including, without limitation, acknowledgements by lessors,
mortgagees and warehousemen of Agent's security interests in the Collateral,
waivers by such persons of any security interests, liens or other claims by such
persons to the Collateral and agreements permitting Agent's access to, and the
right to remain on, the premises to exercise its rights and remedies and
otherwise deal with the Collateral;
24
(f) Borrower shall have established the Blocked Accounts and Agent
shall have received, in form and substance satisfactory to Agent, all agreements
with the depository banks and Borrower with respect to such Blocked Accounts as
Agent may require pursuant to Section 7.3 hereof, duly authorized, executed and
delivered by such depository banks and Borrower;
(g) Agent shall have received evidence, in form and substance
satisfactory to Agent, that Borrower has (i) directed the banks at which
Borrower maintains deposit accounts for the initial receipt of cash, checks and
other items from Borrower's retail store locations to transfer all immediately
available funds deposited in such bank only to the Blocked Accounts as required
pursuant to Section 7.3 hereof or as otherwise directed by Agent and (ii)
notified such banks of the security interests of Agent in such funds and the
other Collateral;
(h) Agent shall have received Credit Card Acknowledgements in each
case, duly authorized, executed and delivered by the Credit Card Issuers and
Credit Card Processors;
(i) Agent shall have received evidence of insurance and loss payee
endorsements required hereunder and under the other Financing Agreements, in
form and substance satisfactory to Agent, and certificates of insurance policies
and/or endorsements naming Agent and each Lender as loss payee;
(j) Agent shall have received, in form and substance satisfactory to
Agent, the opinion letter of counsel(s) to Borrower with respect to the
Financing Agreements and the security interests and liens of Agent with respect
to the Collateral and such other matters as Agent may request;
(k) the other Financing Agreements and all instruments and documents
hereunder and thereunder shall have been duly executed and delivered to Agent,
in form and substance satisfactory to Agent.
5.2 Conditions Precedent to All Loans and Letter of Credit Accommodations.
---------------------------------------------------------------------
Each of the following is an additional condition precedent to Lender (or Agent
on behalf of Lender) making Loans and/or providing Letter of Credit
Accommodations to Borrower, including the initial Loans and Letter of Credit
Accommodations and any future Loans and Letter of Credit Accommodations:
(a) all representations and warranties contained herein and in the
other Financing Agreements shall be true and correct in all material respects
with the same effect as though such representations and warranties had been made
on and as of the date of the making of each such Loan or providing each such
Letter of Credit Accommodation and after giving effect thereto; and
(b) no Event of Default and no act, condition or event or condition
which, with notice or passage of time or both, would constitute an Event of
Default, shall exist or have
25
occurred and be continuing on and as of the date of the making of such Loan or
providing each such Letter of Credit Accommodation and after giving effect
thereto.
SECTION 6. SECURITY INTEREST
-----------------
6.1 To secure payment and performance of all Obligations, Borrower hereby
grants to Agent, for itself and the benefit of Lender, a continuing security
interest in, a lien upon, and a right of set off against, and hereby assigns to
Agent, for itself and the benefit of Lender, and also confirms, reaffirms and
restates its prior grant to Agent, for itself and the benefit of Lender, as
assignee of Lender under the Assignment Agreement, of a continuing security
interest in, a lien upon, and a right of setoff against, in each case, as
security, the following property and interests in property of Borrower, whether
now owned or hereafter acquired or existing, and wherever located (collectively,
the "Collateral"):
(a) Accounts;
(b) all present and future contract rights, general intangibles (including,
but not limited to, tax and duty refunds, registered and unregistered patents,
trademarks, service marks, copyrights, trade names, applications for the
foregoing, trade secrets, goodwill, processes, drawings, blueprints, customer
lists, prescription files, licenses, whether as licensor or licensee, choses in
action and other claims and existing and future leasehold interests in
equipment, real estate and fixtures), chattel paper, documents, instruments,
securities and other investment property, credit card sales drafts, credit card
sales slips or charge slips or receipts and other forms of store receipts,
letters of credit, bankers' acceptances and guaranties;
(c) all present and future monies, securities, credit balances, deposits,
deposit accounts and other property of Borrower now or hereafter held or
received by or in transit to Agent, Lender or its affiliates or at any other
depository or other institution from or for the account of Borrower, whether for
safekeeping, pledge, custody, transmission, collection or otherwise, and all
present and future liens, security interests, rights, remedies, title and
interest in, to and in respect of Accounts and other Collateral, including,
without limitation, (i) rights and remedies under or relating to guaranties,
contracts of suretyship, letters of credit and credit and other insurance
related to the Collateral, (ii) rights of stoppage in transit, replevin,
repossession, reclamation and other rights and remedies of an unpaid vendor,
lienor or secured party, (iii) goods described in invoices, documents, credit
card sales drafts, credit card sales slips or charge slips or receipts and other
forms of store receipts, contracts or instruments with respect to, or otherwise
representing or evidencing, Accounts or other Collateral, including, without
limitation, returned, repossessed and reclaimed goods, and (iv) deposits by and
property of account debtors or other persons securing the obligations of account
debtors;
(d) Inventory;
26
(e) Equipment (except as otherwise provided below);
(f) Records; and
(g) all products and proceeds of the foregoing, in any form, including,
without limitation, insurance proceeds and all claims against third parties for
loss or damage to or destruction of any or all of the foregoing.
6.2 Notwithstanding anything to the contrary contained in Section 6.1
above, the types or items of Collateral described in such Section shall not
include any Equipment which is, or at the time of Borrower's acquisition thereof
shall be, subject to a purchase money mortgage or other purchase money lien or
security interest (including capitalized or finance leases) permitted under
Section 10.8 hereof if: (a) the valid grant of a security interest or lien to
Agent in such item of Equipment is prohibited by the terms of the agreement
between Borrower and the holder of such purchase money mortgage or other
purchase money lien or security interest or under applicable law and such
prohibition has not been or is not waived, or the consent of the holder of the
purchase money mortgage or other purchase money lien or security interest has
not been or is not otherwise obtained, or under applicable law such prohibition
cannot be waived and (b) the purchase money mortgage or other purchase money
lien or security interest on such item of Equipment is or shall become valid and
perfected.
SECTION 7. COLLECTION AND ADMINISTRATION
-----------------------------
7.1 Borrower's Loan Account. Agent shall maintain one or more loan
-----------------------
account(s) on its books in which shall be recorded (a) all Loans, Letter of
Credit Accommodations and other Obligations and the Collateral, (b) all payments
made by or on behalf of Borrower and (c) all other appropriate debits and
credits as provided in this Agreement, including, without limitation, fees,
charges, costs, expenses and interest. All entries in the loan account(s) shall
be made in accordance with Agent's customary practices as in effect from time to
time.
7.2 Statements. Agent shall render to Borrower each month a statement
----------
setting forth the balance in the Borrower's loan account(s) maintained by Agent
for Borrower pursuant to the provisions of this Agreement, including principal,
interest, fees, costs and expenses. Each such statement shall be subject to
subsequent adjustment by Agent but shall, absent manifest errors or omissions,
be considered correct and deemed accepted by Borrower and conclusively binding
upon Borrower as an account stated except to the extent that Agent receives a
written notice from Borrower of any specific exceptions of Borrower thereto
within thirty (30) days after the date such statement has been mailed by Agent.
Until such time as Agent shall have rendered to Borrower a written statement as
provided above, the balance in Borrower's loan account(s) shall be presumptive
evidence of the amounts due and owing to Agent by Borrower.
27
7.3 Collection of Accounts.
----------------------
(a) Borrower shall establish and maintain, at its expense, deposit
account arrangements and merchant payment arrangements with the banks set forth
on Schedule 7.3 hereto and after prior written notice to Agent, subject to
Section 10.16, such other banks as Borrower may hereafter select as are
acceptable to Agent. The banks set forth on Schedule 7.3 constitute all of the
banks with whom Borrower has deposit account arrangements and merchant payment
arrangements as of the date hereof and identifies each of the deposit accounts
at such banks to a retail store location of Borrower or otherwise describes the
nature of the use of such deposit account by Borrower.
(i) Borrower shall deposit all proceeds from sales of Inventory in
every form, including, without limitation, cash, checks, credit card sales
drafts, credit card sales or charge slips or receipts and other forms of daily
store receipts, from each retail store location of Borrower on each business day
into the deposit accounts of Borrower used solely for such purpose and
identified to each retail store location as set forth on Schedule 7.3. All such
funds deposited into the separate deposit accounts shall be sent by wire
transfer on a daily basis and all other proceeds of Collateral shall be sent by
wire transfer, to the Blocked Accounts as provided in Section 7.3(a)(ii) below.
Borrower shall irrevocably authorize and direct in writing, in form and
substance satisfactory to Agent, each of the banks into which proceeds from
sales of Inventory from each retail store location of Borrower are at any time
deposited as provided above to send all funds deposited in such account by wire
transfer on a daily basis to the Blocked Accounts. Such authorization and
direction shall not be rescinded, revoked or modified without the prior written
consent of Agent.
(ii) Borrower shall establish and maintain, at its expense, deposit
accounts with such banks as are acceptable to Agent (the "Blocked Accounts")
into which Borrower shall promptly either cause all amounts on deposit in its
deposit accounts used by each retail store location to be sent as provided in
Section 7.3(a)(i) above or shall itself deposit or cause to be deposited all
proceeds from sales of Inventory, all amounts payable to Borrower from Credit
Card Issuers and Credit Card Processors and all other proceeds of Collateral.
The banks at which the Blocked Accounts are established shall enter into an
agreement, in form and substance satisfactory to Agent, providing that all items
received or deposited in the Blocked Accounts are the property of Agent and
Lender, that the depository bank has no lien upon, or right of setoff against,
the Blocked Accounts, the items received for deposit therein, or the funds from
time to time on deposit therein and that the depository bank will wire, or
otherwise transfer, in immediately available funds, on a daily basis, all funds
received or deposited into the Blocked Accounts to such bank account of Agent,
as Agent may from time to time designate for such purpose ("Payment Account").
Borrower agrees that all amounts deposited in such Blocked Accounts or other
funds received and collected by Agent, whether as proceeds of inventory or other
Collateral or otherwise shall be the property of Agent.
28
(b) For purposes of calculating the amount of the Loans available to
Borrower such payments will be applied (conditional upon final collection) to
the Obligations on the Business Day of receipt by Agent of immediately available
funds in the Payment Account provided such payments and notice thereof are
received in accordance with Agent's usual and customary practices as in effect
from time to time and within sufficient time to credit Borrower's loan account
on such day, and if not, then on the next Business Day. For purposes of
calculating interest on the Obligations, such payments or other funds received
will be applied (conditional upon final collection) to the Obligations one (1)
Business Day following the date of receipt of immediately available funds by
Agent in the Payment Account provided such payments or other funds and notice
thereof are received in accordance with Agent's usual and customary practices as
in effect from time to time and within sufficient time to credit Borrower's loan
account on such day, and if not, then on the next Business Day.
(c) Borrower and all of its affiliates, Subsidiaries, shareholders,
directors, employees or agents shall, acting as trustee for Agent, receive, as
the property of Agent, any cash, checks, credit card sales drafts, credit card
sales or charge slips or receipts, notes, drafts, any other forms of store
receipts or any other payment relating to and/or proceeds of Accounts or other
Collateral which come into their possession or under their control and
immediately upon receipt thereof, shall deposit or cause the same to be
deposited in the Blocked Accounts, or remit the same or cause the same to be
remitted, in kind, to Agent, provided, that, if at any time the Excess
-------- ----
Availability shall be less than $1,000,000, Borrower shall promptly upon Agent's
request cause the portion thereof representing sales and/or use taxes payable in
connection with such sales or otherwise to be deposited into a separate bank
account or accounts established for such purpose. In no event shall any such
cash, checks, credit card sales drafts, credit card sales or charge slips or
receipts, notes, drafts or other payments be commingled with Borrower's own
funds. Borrower agrees to reimburse Agent on demand for any amounts owed or
paid to any bank at which a Blocked Account is established or any other bank or
person involved in the transfer of funds to or from the Blocked Accounts arising
out of Agent's payments to or indemnification of such bank or person. The
obligation of Borrower to reimburse Agent for such amounts pursuant to this
Section 7.3 shall survive the termination or non-renewal of this Agreement.
7.4 Payments. All Obligations shall be payable to the Payment Account as
--------
provided in Section 7.3 or such other place as Agent may designate from time to
time. Agent may apply payments received or collected from Borrower or for the
account of Borrower (including, without limitation, the monetary proceeds of
collections or of realization upon any Collateral) to such of the Obligations,
whether or not then due, in such order and manner as Agent determines. At
Agent's option, all principal, interest, fees, costs, expenses and other charges
provided for in this Agreement or the other Financing Agreements may be charged
directly to the loan account(s) of Borrower. Borrower shall make all payments
to Agent, for the benefit of Lender, on the Obligations free and clear of, and
without deduction or withholding for or on account of, any setoff, counterclaim,
defense, duties, taxes, levies, imposts, fees, deductions, withholding,
restrictions or conditions of any kind. If after receipt of any payment of, or
proceeds of
29
Collateral applied to the payment of, any of the Obligations, Agent or Lender is
required to surrender or return such payment or proceeds to any Person for any
reason, then the Obligations intended to be satisfied by such payment or
proceeds shall be reinstated and continue and this Agreement shall continue in
full force and effect as if such payment or proceeds had not been received by
Agent. Borrower shall be liable to pay to Agent, for the benefit of Lender, and
does hereby indemnify and hold Agent and Lender harmless for the amount of any
payments or proceeds surrendered or returned. This Section 7.4 shall remain
effective notwithstanding any contrary action which may be taken by Agent in
reliance upon such payment or proceeds. This Section 7.4 shall survive the
payment of the Obligations and the termination or non-renewal of this Agreement.
7.5 Authorization to Make Loans. Agent is authorized to make the Loans
---------------------------
and provide the Letter of Credit Accommodations, for the account and risk of
Lender, based upon telephonic or other instructions received from anyone
purporting to be an officer of Borrower or other authorized person or, at the
discretion of Agent, if such Loans are necessary to satisfy any Obligations.
All requests for Loans or Letter of Credit Accommodations hereunder shall
specify the date on which the requested advance is to be made or Letter of
Credit Accommodations established (which day shall be a Business Day) and the
amount of the requested Loan. Requests received after 11:00 a.m. New York time
on any day shall be deemed to have been made as of the opening of business on
the immediately following Business Day. All Loans and Letter of Credit
Accommodations under this Agreement shall be conclusively presumed to have been
made to, and at the request of and for the benefit of, Borrower when deposited
to the credit of Borrower or otherwise disbursed or established in accordance
with the instructions of Borrower or in accordance with the terms and conditions
of this Agreement.
7.6 Use of Proceeds. The Loans or Letter of Credit Accommodations provided
---------------
by Agent to Borrower pursuant to the provisions hereof shall be used by Borrower
only for general operating, working capital and other proper corporate purposes
of Borrower not otherwise prohibited by the terms hereof (including, but not
limited to, the expenses of opening additional retail store locations). None of
the proceeds will be used, directly or indirectly, for the purpose of purchasing
or carrying any margin security or for the purposes of reducing or retiring any
indebtedness which was originally incurred to purchase or carry any margin
security or for any other purpose which might cause any of the Loans to be
considered a "purpose credit" within the meaning of Regulation G of the Board of
Governors of the Federal Reserve System, as amended.
7.7 Sharing of Payments, Etc. Borrower agrees that, in addition to (and
------------------------
without limitation of) any right of setoff, banker's lien or counterclaim Agent
or Lender may otherwise have, Lender shall be entitled, at its option (but
subject, as among Agent and Lender, to the provisions of Section 13.3(b)
hereof), to offset balances held by it for the account of Borrower at any of its
offices, in dollars or in any other currency, against any principal of or
interest on any Loans owed to Lender or any other amount payable to Lender
hereunder, that is not paid when due (regardless of whether such balances are
then due to Borrower), in which case it shall
30
promptly notify Borrower and Agent thereof; provided, that, Lender's failure to
-------- ----
give such notice shall not affect the validity thereof.
7.8 Settlement Procedures. In order to administer the Loans and Letter of
---------------------
Credit Accommodations in an efficient manner and to minimize the transfer of
funds between Agent and Lender, Agent shall, subject to the terms of this
Section 7.8, make available, on behalf of Lender, the full amount of the Loans
requested or charged to Borrower's loan account(s) or otherwise to be advanced
by Lender pursuant to the terms hereof, without any requirement of prior notice
to Lender of the proposed Loans. Agent and Lender shall settle between them at
such times and in such manner as Agent and Lender may agree. The obligation of
Lender to transfer funds to Agent and effect such settlement shall be
irrevocable and unconditional and without recourse to or warranty by Agent. In
lieu of settlements, Agent may at any time require Lender to provide Agent with
immediately available funds for each Loan, prior to Agent's disbursement of such
Loan to Borrower.
SECTION 8. COLLATERAL REPORTING AND COVENANTS
----------------------------------
8.1 Collateral Reporting. Borrower shall provide Agent with the following
--------------------
documents in a form satisfactory to Agent: (a) on a monthly basis or more
frequently as Agent may request, (i) perpetual inventory reports, (ii) inventory
reports by category, (iii) agings of accounts payable, (iv) a reconciliation of
the perpetual inventory report to the general ledger of Borrower, (v) reports of
the Cost and Retail Value of the Inventory (net of markdowns) and (vi) in the
event there is any consigned Inventory, reports of amounts of consigned
Inventory held by Borrower by category and consignor, (b) on a quarterly basis
or more frequently as Agent may request reports by retail store location of
sales and operating profits for each such retail store location; (c) upon
Agent's request, (i) reports of sales for each category of Inventory, (ii)
reports on sales and use tax collections, deposits and payments, including
monthly sales and use tax accruals, (iii) reports of aggregate Inventory
purchases (including all costs related thereto, such as freight, duty and taxes)
and identifying items of Inventory in transit to Borrower related to the
applicable documentary letter of credit and/or xxxx of lading number, (iv)
copies of remittance advices and reports, and copies of deposit slips and bank
statements, (v) copies of shipping and delivery documents, and (vi) copies of
purchase orders, invoices and delivery documents for Inventory and Equipment
acquired by Borrower; and (d) upon Agent's request, the monthly statements
received by Borrower from any Credit Card Issuers or Credit Card Processors,
together with such additional information with respect thereto as shall be
sufficient to enable Agent to monitor the transactions pursuant to the Credit
Card Agreements; (e) such other reports as to the Collateral as Agent shall
request from time to time. If any of Borrower's records or reports of the
Collateral are prepared or maintained by an accounting service, contractor,
shipper or other agent, Borrower hereby irrevocably authorizes such service,
contractor, shipper or agent to deliver such records, reports, and related
documents to Agent and to follow Agent's instructions with respect to further
services at any time that an Event of Default exists or has occurred and is
continuing.
31
8.2 Accounts Covenants.
------------------
(a) No credit, discount, allowance or extension or agreement for any
of the foregoing shall be granted to any account debtor, Credit Card Issuer or
Credit Card Processor except in the ordinary course of Borrower's business in
accordance with the current practices of Borrower as in effect on the date
hereof. So long as no Event of Default exists or has occurred and is
continuing, Borrower shall settle, adjust or compromise any claim, offset,
counterclaim or dispute with any account debtor, Credit Card Issuer, Credit Card
Processor. At any time that an Event of Default exists or has occurred and is
continuing, Agent shall, at its option, have the exclusive right to settle,
adjust or compromise any claim, offset, counterclaim or dispute with account
debtors, Credit Card Issuers or Credit Card Processors or grant any credits,
discounts or allowances.
(b) Borrower shall notify Agent promptly of: (i) any notice of a
material default by Borrower under any of the Credit Card Agreements or of any
default which might result in the Credit Card Issuer or Credit Card Processor
ceasing to make payments or suspending payments to Borrower, (ii) any notice
from any Credit Card Issuer or Credit Card Processor that such person is ceasing
or suspending, or will cease or suspend, any present or future payments due or
to become due to Borrower from such person, or that such person is terminating
or will terminate any of the Credit Card Agreements, and (iii) the failure of
Borrower to comply with any material terms of the Credit Card Agreements or any
terms thereof which might result in the Credit Card Issuer or Credit Card
Processor ceasing or suspending payments to Borrower.
(c) With respect to each Account: (i) the amounts shown on any
invoice delivered to Agent or schedule thereof delivered to Agent shall be true
and complete, (ii) no payments shall be made thereon except payments delivered
to Agent, for the benefit of Lender, pursuant to the terms of this Agreement,
(iii) no credit, discount, allowance or extension or agreement for any of the
foregoing shall be granted to any account debtor, Credit Card Issuer or Credit
Card Processor, except as reported to Agent in accordance with this Agreement
and except for credits, discounts, allowances or extensions made or given in the
ordinary course of Borrower's business in accordance with practices and policies
previously disclosed to Agent and (iv) none of the transactions giving rise
thereto will violate any applicable State or Federal Laws or regulations, all
documentation relating thereto will be legally sufficient under such laws and
regulations and all such documentation will be legally enforceable in accordance
with its terms.
(d) Agent may, at any time or times that an Event of Default exists
or has occurred and is continuing, (i) notify any or all account debtors, Credit
Card Issuers and Credit Card Processors that the Accounts have been assigned to
Agent and that Agent has a security interest therein and Agent may direct any or
all account debtors, Credit Card Issuers and Credit Card Processors to make
payments of Accounts directly to Agent, (ii) extend the time of payment of,
compromise, settle or adjust for cash, credit, return of merchandise or
otherwise, and upon any terms or conditions, any and all Accounts or other
obligations included in the Collateral and thereby discharge or release the
account debtor or any other party or parties in any way liable for
32
payment thereof without affecting any of the Obligations, (iii) demand, collect
or enforce payment of any Accounts or such other obligations, but without any
duty to do so, and Agent shall not be liable for its failure to collect or
enforce the payment thereof nor for the negligence of its agents or attorneys
with respect thereto and (iv) take whatever other action Agent may deem
necessary or desirable for the protection of its interests. At any time that an
Event of Default exists or has occurred and is continuing, at Agent's request,
all invoices and statements sent to any account debtor, Credit Card Issuer or
Credit Card Processor shall state that the Accounts due from such account
debtor, Credit Card Issuer or Credit Card Processor and such other obligations
have been assigned to Agent and are payable directly and only to Agent and
Borrower shall deliver to Agent such originals of documents evidencing the sale
and delivery of goods or the performance of services giving rise to any Accounts
as Agent may require.
(e) Agent shall have the right at any time or times, in Agent's name
or in the name of a nominee of Agent, to verify the validity, amount or any
other matter relating to any Account or other Collateral, by mail, telephone,
facsimile transmission or otherwise.
(f) Borrower shall deliver or cause to be delivered to Agent, with
appropriate endorsement and assignment, with full recourse to Borrower, all
chattel paper and instruments which Borrower now owns or may at any time acquire
immediately upon Borrower's receipt thereof, except as Agent may otherwise
agree.
8.3 Inventory Covenants. With respect to the Inventory: (a) Borrower shall
-------------------
at all times maintain inventory records reasonably satisfactory to Agent,
keeping correct and accurate records itemizing and describing the kind, type,
quality and quantity of Inventory, Borrower's cost therefor and daily
withdrawals therefrom and additions thereto; (b) Borrower shall conduct a
physical count of the Inventory at least once each year, but at any time or
times as Agent may request on or after an Event of Default, and promptly
following such physical inventory shall supply Agent with a report in the form
and with such specificity as may be reasonably satisfactory to Agent concerning
such physical count; (c) Borrower shall not remove any Inventory from the
locations set forth or permitted herein, without the prior written consent of
Agent, except for sales of Inventory in the ordinary course of Borrower's
business and except to move Inventory directly from one location set forth or
permitted herein to another such location; (d) upon Agent's request, Borrower
shall, at its expense, no more than once in any six (6) month period, but at any
time or times as Agent may request at Agent's expense, or at any time or times
as Agent may request at Borrower's expense on or after an Event of Default,
deliver or cause to be delivered to Agent written reports or appraisals as to
the Inventory in form, scope and methodology acceptable to Agent and by an
appraiser acceptable to Agent, addressed to Agent or upon which Agent is
expressly permitted to rely; (e) upon Agent's request, Borrower shall, at its
expense, conduct through Washington Inventory Services, Inc., RGIS Inventory
Specialists, Inc. or another inventory counting service acceptable to Agent, a
physical count of the Inventory at each retail store location or other location
of such Inventory in form, scope and methodology acceptable to Agent no less
than one time in any twelve (12) month period, but at any time or times as Agent
may request on or after an Event of Default, the results of which shall be
reported
33
directly by such inventory counting service to Agent and Borrower shall promptly
deliver confirmation in a form satisfactory to Agent that appropriate
adjustments have been made to the inventory records of Borrower to reconcile the
inventory count to Borrower's inventory records; (f) Borrower shall produce,
use, store and maintain the Inventory, with all reasonable care and caution and
in accordance with applicable standards of any insurance and in conformity with
applicable laws (including, but not limited to, the requirements of the Federal
Fair Labor Standards Act of 1938, as amended and all rules, regulations and
orders related thereto); (g) Borrower assumes all responsibility and liability
arising from or relating to the production, use, sale or other disposition of
the Inventory; (h) Borrower shall not sell Inventory to any customer on
approval, or any other basis which entitles the customer to return or may
obligate Borrower to repurchase such Inventory except for the right of return
given to retail customers of Borrower in the ordinary course of the business of
Borrower in accordance with the then current return policy of Borrower; (i)
Borrower shall keep the Inventory in good and marketable condition; and (j)
Borrower shall not acquire or accept any Inventory on consignment or approval,
except to the extent such Inventory is reported to Agent in accordance with the
terms hereof.
8.4 Power of Attorney. Borrower hereby irrevocably designates and
-----------------
appoints Agent (and all persons designated by Agent) as Borrower's true and
lawful attorney-in-fact, and authorizes Agent, in Borrower's or Agent's name,
to: (a) at any time an Event of Default or event which with notice or passage of
time or both would constitute an Event of Default exists or has occurred and is
continuing (i) demand payment on Accounts or other proceeds of Inventory or
other Collateral, (ii) enforce payment of Accounts by legal proceedings or
otherwise, (iii) exercise all of Borrower's rights and remedies to collect any
Account or other Collateral, (iv) sell or assign any Account upon such terms,
for such amount and at such time or times as the Agent deems advisable, (v)
settle, adjust, compromise, extend or renew an Account, (vi) discharge and
release any Account, (vii) prepare, file and sign Borrower's name on any proof
of claim in bankruptcy or other similar document against an account debtor,
(viii) notify the post office authorities to change the address for delivery of
Borrower's mail to an address designated by Agent, and open and dispose of all
mail addressed to Borrower, and (ix) do all acts and things which are necessary,
in Agent's determination, to fulfill Borrower's obligations under this Agreement
and the other Financing Agreements and (b) at any time to (i) take control in
any manner of any item of payment or proceeds thereof, (ii) have access to any
lockbox or postal box into which Borrower's mail is deposited, (iii) endorse
Borrower's name upon any items of payment or proceeds thereof and deposit the
same in the Agent's account for application to the Obligations, (iv) endorse
Borrower's name upon any chattel paper, document, instrument, invoice, or
similar document or agreement relating to any Account or any goods pertaining
thereto or any other Collateral, (v) sign Borrower's name on any verification of
Accounts and notices thereof to account debtors and (vi) execute in Borrower's
name and file any UCC financing statements or amendments thereto. Borrower
hereby releases Agent and its officers, employees and designees from any
liabilities arising from any act or acts under this power of attorney and in
furtherance thereof, whether of omission or commission, except as a result of
Agent's own gross negligence or wilful misconduct as determined pursuant to a
final non-appealable order of a court of competent jurisdiction.
34
8.5 Right to Cure. Agent may, at its option, (a) cure any default by
-------------
Borrower under any agreement with a third party or pay or bond on appeal any
judgment entered against Borrower, (b) discharge taxes, liens, security
interests or other encumbrances at any time levied on or existing with respect
to the Collateral and (c) pay any amount, incur any expense or perform any act
which, in Agent's judgment, is necessary or appropriate to preserve, protect,
insure or maintain the Collateral and the rights of Agent and Lender with
respect thereto. Agent may add any amounts so expended to the Obligations and
charge Borrower's account therefor, such amounts to be repayable by Borrower on
demand. Agent shall be under no obligation to effect such cure, payment or
bonding and shall not, by doing so, be deemed to have assumed any obligation or
liability of Borrower. Any payment made or other action taken by Agent under
this Section shall be without prejudice to any right to assert an Event of
Default hereunder and to proceed accordingly.
8.6 Access to Premises. From time to time as requested by Agent, at the
------------------
cost and expense of Borrower, (a) Agent or its designee shall have complete
access to all of Borrower's premises during normal business hours and after
notice to Borrower, or at any time and without notice to Borrower if an Event of
Default exists or has occurred and is continuing, for the purposes of
inspecting, verifying and auditing the Collateral and all of Borrower's books
and records, including, without limitation, the Records, and (b) Borrower shall
promptly furnish to Agent such copies of such books and records or extracts
therefrom as Agent may request, and (c) use during normal business hours such of
Borrower's personnel, equipment, supplies and premises as may be reasonably
necessary for the foregoing and if an Event of Default exists or has occurred
and is continuing for the collection of Accounts and realization of other
Collateral.
SECTION 9. REPRESENTATIONS AND WARRANTIES
------------------------------
Borrower hereby represents and warrants to Agent and Lender the following
(which shall survive the execution and delivery of this Agreement), the truth
and accuracy of which are a continuing condition of the making of Loans and
providing Letter of Credit Accommodations to Borrower:
9.1 Corporate Existence, Power and Authority; Subsidiaries. Borrower is a
------------------------------------------------------
corporation duly organized and in good standing under the laws of its state of
incorporation and is duly qualified as a foreign corporation and in good
standing in all states or other jurisdictions where the nature and extent of the
business transacted by it or the ownership of assets makes such qualification
necessary, except for those jurisdictions in which the failure to so qualify
would not have a material adverse effect on Borrower's financial condition,
results of operation or business or the rights of Agent or Lender in or to any
of the Collateral. The execution, delivery and performance of this Agreement,
the other Financing Agreements and the transactions contemplated hereunder and
thereunder are all within Borrower's corporate powers, have been duly authorized
and are not in contravention of law or the terms of Borrower's articles of
incorporation or by-laws, or any indenture, agreement or undertaking to which
Borrower is a
35
party or by which Borrower or its property are bound. This Agreement and the
other Financing Agreements constitute legal, valid and binding obligations of
Borrower enforceable in accordance with their respective terms. Borrower does
not have any Subsidiaries except as set forth on the Information Certificate.
9.2 Financial Statements; No Material Adverse Change. All financial
------------------------------------------------
statements relating to Borrower delivered by Borrower to Agent have been
prepared in accordance with GAAP and fairly present the financial condition and
the results of operation of Borrower as at the dates and for the periods set
forth therein (subject, as to interim statements, to normal year-end adjustments
and the absence of footnotes). Except as disclosed in any interim financial
statements furnished by Borrower to Agent prior to the date of this Agreement,
there has been no material adverse change in the assets, liabilities, properties
and condition, financial or otherwise, of Borrower, since the date of the most
recent audited financial statements furnished by Borrower to Agent prior to the
date of this Agreement.
9.3 Chief Executive Office; Collateral Locations. The chief executive
--------------------------------------------
office of Borrower and Borrower's Records concerning Accounts and Inventory are
located only at the address set forth below and its only other places of
business and the only other locations of Collateral, if any, are the addresses
set forth in the Information Certificate, subject to the right of Borrower to
establish new locations in accordance with Section 10.2 below. The Information
Certificate correctly identifies any of such locations which are not owned by
Borrower and sets forth the owners and/or operators thereof and to the best of
Borrower's knowledge, the holders of any mortgages on such locations.
9.4 Priority of Liens; Title to Properties. The security interests and
--------------------------------------
liens granted to Agent, for itself and the benefit of Lender, under this
Agreement and the other Financing Agreements constitute valid and perfected
first priority liens and security interests in and upon the Collateral subject
only to the liens indicated on Schedule 9.4 hereto and the other liens permitted
under Section 9.8 hereof. Borrower has good and marketable title to all of its
properties and assets subject to no liens, mortgages, pledges, security
interests, encumbrances or charges of any kind, except those granted to Agent,
for the benefit of Lender, and such others as are specifically listed on
Schedule 9.4 hereto or permitted under Section 10.8 hereof.
9.5 Tax Returns. Borrower has filed, or caused to be filed, in a timely
-----------
manner all tax returns, reports and declarations which are required to be filed
by it (without requests for extension except as previously disclosed in writing
to Agent) where the failure to file would have a Material Adverse Effect. All
information in such tax returns, reports and declarations is complete and
accurate in all material respects. Borrower has paid or caused to be paid all
material taxes due and payable or claimed due and payable in any assessment
received by it, and has collected, deposited and remitted in accordance with all
applicable laws all sales and/or use taxes applicable to the conduct of its
business, except taxes the validity of which are being contested in good faith
by appropriate proceedings diligently pursued and available to Borrower and with
respect to which adequate reserves have been set aside on its books. Adequate
36
provision has been made for the payment of all accrued and unpaid Federal,
State, county, local, foreign and other taxes whether or not yet due and payable
and whether or not disputed. Borrower has collected and deposited in a separate
bank account or remitted to the appropriate tax authority all sales and/or use
taxes applicable to its business required to be collected under the laws of the
United States and each possession or territory thereof, and each State or
political subdivision thereof, including any State in which Borrower owns any
Inventory or owns or leases any other property.
9.6 Litigation. Except as set forth on the Information Certificate, there
----------
is no present investigation by any governmental agency pending, or to the best
of Borrower's knowledge threatened, against or affecting Borrower, its assets or
business and there is no action, suit, proceeding or claim by any Person
pending, or to the best of Borrower's knowledge threatened, against Borrower or
its assets or goodwill, or against or affecting any transactions contemplated by
this Agreement, which if adversely determined against Borrower would have a
Material Adverse Effect.
9.7 Compliance with Other Agreements and Applicable Laws.
----------------------------------------------------
(a) Borrower is not in default in any respect under, or in violation
in any respect of any of the terms of, any agreement, contract, instrument,
lease or other commitment to which it is a party or by which it or any of its
assets are bound where which default or violation would have a Material Adverse
Effect. Borrower is in compliance in all respects with the requirements of all
applicable laws, rules, regulations and orders of any governmental authority
relating to its business, including, without limitation, those set forth in or
promulgated pursuant to the Occupational Safety and Health Act of 1970, as
amended, the Fair Labor Standards Act of 1938, as amended, ERISA, the Code, as
amended, and the rules and regulations thereunder, all Federal, State and local
statutes, regulations, rules and orders relating to consumer credit (including,
without limitation, as each has been amended, the Truth-in-Lending Act, the Fair
Credit Billing Act, the Equal Credit Opportunity Act and the Fair Credit
Reporting Act, and regulations, rules and orders promulgated thereunder), all
Federal, State and local states, regulations, rules and orders pertaining to
sales of consumer goods (including, without limitation, the Consumer Products
Safety Act of 1972, as amended, and the Federal Trade Commission Act of 1914, as
amended, and all regulations, rules and orders promulgated thereunder) where the
failure to comply would have a Material Adverse Effect.
(b) Borrower has obtained all material permits, licenses, approvals,
consents, certificates, orders or authorizations of any governmental agency
required for the lawful conduct of its business. Schedule 9.7 hereto sets forth
all material permits, licenses, approvals, consents, certificates, orders or
authorizations (the "Permits") issued to or held by Borrower as of the date
hereof by any federal, state or local governmental agency and any applications
pending by Borrower with such federal, state or local governmental agency. The
Permits constitute all permits, licenses, approvals, consents, certificates,
orders or authorizations necessary for Borrower to own and operate its business
as presently conducted or proposed to be conducted
37
where the failure to have such Permits would have a material adverse effect on
the business, performance, operations or properties of Borrower or the legality,
validity or enforceability of this Agreement or the other Financing Agreements
or the ability of Borrower to perform its obligations under the Agreement or any
of the other Financing Agreements or the rights and remedies of Agent and Lender
under this Agreement or any of the other Financing Agreements. All of the
Permits are valid and subsisting and in full force and effect. There are no
actions, claims or proceedings pending or, to the best of Borrower's knowledge,
threatened that seek the revocation, cancellation, suspension or modification of
any of the Permits.
9.8 Environmental Compliance.
------------------------
(a) Except as set forth on Schedule 9.8 hereto, Borrower has not
generated, used, stored, treated, transported, manufactured, handled, produced
or disposed of any Hazardous Materials, on or off its premises (whether or not
owned by it) in any manner which at any time violates any applicable
Environmental Law in any material respect or any license, permit, certificate,
approval or similar authorization issued to Borrower thereunder and the
operations of Borrower comply in all material respects with all applicable
Environmental Laws and all licenses, permits, certificates, approvals and
similar authorizations thereunder.
(b) Except as set forth on Schedule 9.8 hereto, there is no
investigation, proceeding, complaint, order, directive, claim, citation or
notice by any governmental authority or any other person pending or to the best
of Borrower's knowledge threatened, with respect to any non-compliance with or
violation of the requirements of any applicable Environmental Law by Borrower
nor has there been any release, spill or discharge, overtly threatened or
actual, of any Hazardous Material on any properties of Borrower, or to the best
of Borrower's knowledge, releases, spills or discharges from any properties at
which Borrower has transported, stored or disposed of any Hazardous Materials
which would have a Material Adverse Effect.
(c) Except as set forth in Schedule 9.8 hereto, Borrower has no
material liability (contingent or otherwise) in connection with a release, spill
or discharge, threatened or actual, of any Hazardous Materials or the
generation, use, storage, treatment, transportation, manufacture, handling,
production or disposal of any Hazardous Materials.
(d) Borrower has all licenses, permits, certificates, approvals or
similar authorizations required to be obtained or filed in connection with the
operations of Borrower under any Environmental Law and all of such licenses,
permits, certificates, approvals or similar authorizations are valid and in full
force and effect in each case where the failure to obtain or maintain such
licenses, permits, certificates, approvals or similar authorizations would have
a material adverse effect on the assets or business of Borrower or would impair
the ability of Borrower to perform its obligations hereunder or under any of the
other Financing Agreements to which it is a party or of Agent or Lender to
enforce any Obligations or realize upon any Collateral.
38
9.9 Credit Card Agreements. Set forth in Schedule 9.9 hereto is a correct
----------------------
and complete list of (a) all of the Credit Card Agreements and all other
agreements, documents and instruments existing as of the date hereof between or
among Borrower, any of its affiliates, the Credit Card Issuers, the Credit Card
Processors and any of their affiliates, (b) the percentage of each sale payable
to the Credit Card Issuer or Credit Card Processor under the terms of the Credit
Card Agreements, (c) all other fees and charges payable by Borrower under or in
connection with the Credit Card Agreements and (d) the term of such Credit Card
Agreements. The Credit Card Agreements constitute all of such agreements
necessary for Borrower to operate its business as presently conducted with
respect to credit cards and debit cards and no Accounts of Borrower arise from
purchases by customers of Inventory with credit cards or debit cards, other than
those which are issued by Credit Card Issuers with whom Borrower has entered
into one of the Credit Card Agreements set forth on Schedule 9.9 hereto or with
whom Borrower has entered into a Credit Card Agreement in accordance with
Section 10.13 hereof. Each of the Credit Card Agreements constitutes the legal,
valid and binding obligations of Borrower and to the best of Borrower's
knowledge, the other parties thereto, enforceable in accordance with their
respective terms and is in full force and effect. No default or event of
default, or act, condition or event which after notice or passage of time or
both, would constitute a default or an event of default under any of the Credit
Card Agreements exists or has occurred. Borrower and the other parties thereto
have complied with all of the terms and conditions of the Credit Card Agreements
to the extent necessary for Borrower to be entitled to receive all payments
thereunder.
9.10 Employee Benefits.
-----------------
(a) Borrower has not engaged in any transaction in connection with
which Borrower or any of its ERISA Affiliates could be subject to either a civil
penalty assessed pursuant to ERISA or a tax imposed the Code, including any
accumulated funding deficiency described in Section 9.10(c) hereof and any
deficiency with respect to vested accrued benefits described in Section 9.10(d)
hereof.
(b) No material liability to the Pension Benefit Guaranty Corporation
has been or is expected by Borrower to be incurred with respect to any employee
benefit plan of Borrower or any of its ERISA Affiliates. There has been no
reportable event (within the meaning of ERISA) or any other event or condition
with respect to any employee benefit plan of Borrower or any of its ERISA
Affiliates which presents a risk of termination of any such plan by the Pension
Benefit Guaranty Corporation.
(c) Full payment has been made of all amounts which Borrower or any
of its ERISA Affiliates is required under ERISA and the Code to have paid under
the terms of each employee benefit plan as contributions to such plan as of the
last day of the most recent fiscal year of such plan ended prior to the date
hereof, and no material accumulated funding deficiency (as defined in ERISA and
the Code), whether or not waived, exists with respect to any employee pension
benefit plan, including any penalty or tax described in Section 9.10(a) hereof
and any deficiency with respect to vested accrued benefits described in Section
9.10(d) hereof.
39
(d) The current value of all vested accrued benefits under all
employee pension benefit plans maintained by Borrower that are subject to Title
IV of ERISA does not exceed the current value of the assets of such plans
allocable to such vested accrued benefits, including any penalty or tax
described in Section 9.10(a) hereof and any accumulated funding deficiency
described in Section 9.10(d) hereof. The terms "current value" and "accrued
benefit" have the meanings specified in ERISA.
(e) Neither Borrower nor any of its ERISA Affiliates is or has ever
been obligated to contribute to any "multiemployer plan" (as such term is
defined in ERISA) that is subject to Title IV of ERISA.
9.11 Bank Accounts. All of the deposit accounts, investment accounts or
-------------
other accounts in the name of or used by Borrower maintained at any bank or
other financial institution are set forth on Schedule 7.3 hereto, subject to the
right of Borrower to establish new accounts in accordance with Section 10.16
below.
9.12 Accuracy and Completeness of Information. All information furnished
----------------------------------------
by or on behalf of Borrower in writing to Agent or Lender in connection with
this Agreement or any of the other Financing Agreements or any transaction
contemplated hereby or thereby, including, without limitation, all information
on the Information Certificate is true and correct in all material respects on
the date as of which such information is dated or certified and does not omit
any material fact necessary in order to make such information not misleading.
9.13 Survival of Warranties; Cumulative. All representations and
----------------------------------
warranties contained in this Agreement or any of the other Financing Agreements
shall survive the execution and delivery of this Agreement and shall be deemed
to have been made again to Agent and Lender on the date of each additional
borrowing or other credit accommodation hereunder and shall be conclusively
presumed to have been relied on by Agent and Lender regardless of any
investigation made or information possessed by Agent and Lender. The
representations and warranties set forth herein shall be cumulative and in
addition to any other representations or warranties which Borrower shall now or
hereafter give, or cause to be given, to Agent and Lender.
SECTION 10. AFFIRMATIVE AND NEGATIVE COVENANTS
----------------------------------
10.1 Maintenance of Existence. Borrower shall at all times preserve,
------------------------
renew and keep in full, force and effect its corporate existence and rights and
franchises with respect thereto and maintain in full force and effect all
permits, licenses, trademarks, tradenames, approvals, authorizations, leases and
contracts necessary to carry on the business as presently or proposed to be
conducted. Borrower shall give Agent thirty (30) days prior written notice of
any proposed change in its corporate name, which notice shall set forth the new
name and Borrower shall deliver to Agent a copy of the amendment to the articles
of incorporation of Borrower providing
40
for the name change certified by the Secretary of State of the jurisdiction of
incorporation of Borrower as soon as it is available.
10.2 New Collateral Locations. Borrower may open any new location within
------------------------
the continental United States provided Borrower (a) gives Agent thirty (30) days
prior written notice of the intended opening of any such new location and (b)
executes and delivers, or causes to be executed and delivered, to Agent such
agreements, documents, and instruments as Agent may deem reasonably necessary or
desirable to protect its interests in the Collateral at such location, including
UCC financing statements.
10.3 Compliance with Laws, Regulations, Etc. Borrower shall at all times
---------------------------------------
comply in all material respects with all applicable provisions of laws, rules,
regulations, licenses, permits, approvals and orders and duly observe all
material requirements, of any foreign, Federal, State or local governmental
authority, including, without limitation, the Occupational Safety and Health Act
of 1970, as amended, the Code, the Fair Labor Standards Act of 1938, as amended,
and the rules and regulations thereunder, all Federal, State and local statutes,
regulations, rules and orders relating to consumer credit (including, without
limitation, as each has been amended, the Truth-in-Lending Act, the Fair Credit
Billing Act, the Equal Credit Opportunity Act and the Fair Credit Reporting Act,
and regulations, rules and orders promulgated thereunder), all Federal, State
and local statutes, regulations, rules and orders pertaining to sales of
consumer goods (including, without limitation, the Consumer Products Safety Act
of 1972, as amended, and the Federal Trade Commission Act of 1914, as amended,
and all regulations, rules and orders promulgated thereunder) and all statutes,
rules, regulations, orders, permits and stipulations relating to environmental
pollution and employee health and safety, including, without limitation, all
Environmental Laws.
10.4 Payment of Taxes and Claims. Borrower shall duly pay and discharge
---------------------------
all material taxes, assessments, contributions and governmental charges upon or
against it or its properties or assets, except for taxes the validity of which
are being contested in good faith by appropriate proceedings diligently pursued
and available to Borrower and with respect to which adequate reserves have been
set aside on its books. Borrower shall be liable for any tax or penalties
imposed on Agent or any Lender as a result of the financing arrangements
provided for herein and Borrower agrees to indemnify and hold Agent and Lender
harmless with respect to the foregoing, and to repay to Agent and Lender on
demand the amount thereof, and until paid by Borrower such amount shall be added
and deemed part of the Loans, provided, that, nothing contained herein shall be
-------- ----
construed to require Borrower to pay any income or franchise taxes attributable
to the income of Agent or Lender from any amounts charged or paid hereunder to
Agent or Lender. The foregoing indemnity shall survive the payment of the
Obligations and the termination or non-renewal of this Agreement.
10.5 Insurance. Borrower shall, at all times, maintain with financially
---------
sound and reputable insurers insurance with respect to the Collateral against
loss or damage and all other insurance of the kinds and in the amounts
customarily insured against or carried by corporations
41
of established reputation engaged in the same or similar businesses and
similarly situated. Said policies of insurance shall be satisfactory to Agent as
to form, amount and insurer. Borrower shall furnish certificates, policies or
endorsements to Agent as Agent shall require as proof of such insurance, and, if
Borrower fails to do so, Agent is authorized, but not required, to obtain such
insurance at the expense of Borrower. All policies shall provide for at least
thirty (30) days prior written notice to Agent of any cancellation or reduction
of coverage and that Agent may act as attorney for Borrower in obtaining, and at
any time an Event of Default exists or has occurred and is continuing,
adjusting, settling, amending and canceling such insurance. Borrower shall cause
Agent to be named as a loss payee and an additional insured (but without any
liability for any premiums) under such insurance policies and Borrower shall
obtain non-contributory lender's loss payable endorsements to all insurance
policies in form and substance satisfactory to Agent. Such lender's loss payable
endorsements shall specify that the proceeds of such insurance shall be payable
to Agent, for the benefit of Lender, as its interests may appear and further
specify that Agent shall be paid regardless of any act or omission by Borrower
or any of its affiliates. At its option, Agent may apply any insurance proceeds
received by Agent at any time to the cost of repairs or replacement of
Collateral and/or to payment of the Obligations, whether or not then due, in any
order and in such manner as Agent may determine or hold such proceeds as cash
collateral for the Obligations, except, that, notwithstanding anything to the
------ ----
contrary contained herein, in the event that any of the Collateral shall be lost
or physically damaged or destroyed, upon the written request of Borrower, Agent
shall release the net cash proceeds from insurance received by Agent pursuant to
this Section 10.5 to Borrower as a result of such loss, damage or destruction
provided, that, all of the following conditions are satisfied: (a) no Event of
-------- ----
Default or act, condition or event which with notice or passage of time or both
would constitute an Event of Default shall exist or have occurred and be
continuing, (b) the amount of the insurance proceeds are sufficient, in Agent's
determination, to effect such repair, refurbishing or replacement in a
satisfactory manner, (c) such proceeds shall be used first to repair, refurbish
or replace the Collateral so lost, damaged or destroyed (free and clear of any
security interests, liens, claims or encumbrances), (d) the insurance carrier
shall have waived any right of subrogation against Borrower under its policy,
and (e) the casualty resulted in a payment of $500,000 in insurance proceeds or
less.
10.6 Financial Statements and Other Information.
------------------------------------------
(a) Borrower shall keep proper books and records in which true and
complete entries shall be made of all dealings or transactions of or in relation
to the Collateral and the business of Borrower and its Subsidiaries (if any) in
accordance with GAAP and Borrower shall furnish or cause to be furnished to
Agent: (i) within thirty (30) days after the end of each fiscal month, monthly
unaudited consolidated financial statements, and, if Borrower has any
Subsidiaries, unaudited consolidating financial statements (including in each
case balance sheets, statements of income and loss, statements of cash flow and
statements of shareholders' equity), all in reasonable detail, fairly presenting
the financial position and the results of the operations of Borrower and its
Subsidiaries as of the end of and through such fiscal month and (ii) within
ninety (90) days after the end of each fiscal year, audited consolidated
financial statements and, if
42
Borrower has any Subsidiaries, audited consolidating financial statements of
Borrower and its Subsidiaries (including in each case balance sheets, statements
of income and loss, statements of cash flow and statements of shareholders'
equity), and the accompanying notes thereto, all in reasonable detail, fairly
presenting the financial position and the results of the operations of Borrower
and its Subsidiaries as of the end of and for such fiscal year, together with
the unqualified opinion of independent certified public accountants, which
accountants shall be an independent accounting firm selected by Borrower and
reasonably acceptable to Agent, that such financial statements have been
prepared in accordance with GAAP, and present fairly the results of operations
and financial condition of Borrower and its Subsidiaries as of the end of and
for the fiscal year then ended.
(b) Borrower shall promptly notify Agent in writing of the details of
(i) any loss, damage, investigation, action, suit, proceeding or claim relating
to the Collateral or any other property which is security for the Obligations or
which would result in any material adverse change in Borrower's business,
properties, assets, goodwill or condition, financial or otherwise and (ii) the
occurrence of any Event of Default or act, condition or event which, with the
passage of time or giving of notice or both, would constitute an Event of
Default.
(c) Borrower shall promptly after the sending or filing thereof
furnish or cause to be furnished to Agent copies of all reports which Borrower
sends to its stockholders generally and copies of all reports and registration
statements which Borrower files with the Securities and Exchange Commission, any
national securities exchange or the National Association of Securities Dealers,
Inc.
(d) Borrower shall furnish or cause to be furnished to Agent such
budgets, forecasts, projections and other information respecting the Collateral
and the business of Borrower, as Agent may, from time to time, reasonably
request. Agent and Lender are hereby authorized to deliver a copy of any
financial statement or any other information relating to the business of
Borrower to any court or other government agency or to any participant or
assignee or prospective participant or assignee. Borrower hereby irrevocably
authorizes and directs all accountants or auditors to deliver to Agent, at
Borrower's expense, copies of the financial statements of Borrower and any
reports or management letters prepared by such accountants or auditors on behalf
of Borrower and to disclose to Agent such information as they may have regarding
the business of Borrower. Any documents, schedules, invoices or other papers
delivered to Agent may be destroyed or otherwise disposed of by Agent one (1)
year after the same are delivered to Agent, except as otherwise designated by
Borrower to Agent in writing.
10.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc. Borrower
--------------------------------------------------------
shall not, directly or indirectly:
(a) merge into or with or consolidate with any other Person or permit
any other Person to merge into or with or consolidate with it, except, that,
------ ----
Borrower may merge with and into or consolidate with any other Person, provided,
--------
that, each of the following conditions is
----
43
satisfied as determined by Agent: (i) Agent shall have received not less than
twenty (20) Business Days prior written notice of the intention of Borrower to
so merge or consolidate and such information with respect thereto as Agent may
request, (ii) as of the effective date of the merger or consolidation and after
giving effect thereto, no Event of Default, or act, condition or event which
with notice or passage of time or both would constitute an Event of Default,
shall exist or have occurred and be continuing, (iii) promptly upon Agent's
request, Borrower shall furnish, or cause to be furnished to Agent, true,
correct and complete copies of all agreements, documents and instruments
relating to such merger or consolidation, including, but not limited to, the
certificate or certificates of merger or consolidation as filed with each
appropriate Secretary of State, (iv) promptly upon Agent's requests, the
surviving entity shall immediately upon the effectiveness of the merger or
consolidation expressly confirm in writing pursuant to an agreement, in form and
substance satisfactory to Agent, its continuing liability in respect of the
Obligations and Financing Agreements and execute and deliver such other
agreements, documents and instruments as Agent may request in connection
therewith, (v) any Obligor shall, promptly upon Agent's request, ratify and
confirm, in form and substance satisfactory to Agent, that its guarantee of the
Obligations shall apply to the Obligations as assumed by such surviving entity,
(vi) the Person with whom Borrower is merging or consolidating shall be engaged
in the same or a similar business as Borrower, (vii) the assets acquired by
Borrower pursuant to such merger or consolidation shall be free and clear of any
security interest, mortgage, pledge, lien, charge or other encumbrance, (viii)
at its option, Agent shall have conducted a field examination with respect to
the Person, its assets and its business with whom Borrower is merging or
consolidating, and so long as the results thereof are satisfactory, Inventory
acquired by Borrower pursuant to such merger or consolidation may be considered
Eligible Inventory, subject to the terms and conditions contained herein, (ix)
in no event shall the total amount of all payments by Borrower in connection
with such merger or consolidation (whether as consideration for the merger or
consolidation or otherwise), together with capital contributions, loans or other
payments by Borrower permitted under Section 10.10(d), exceed $1,500,000, (x) as
of the date of any such payment, the daily average of the Excess Availability
for the immediately preceding thirty (30) consecutive day period shall be not
less than $2,500,000, and as of the date of any such capital contribution, loan
or other payment and after giving effect thereto, the Excess Availability shall
be not less than $1,000,000, (xi) the surviving entity shall, immediately before
and immediately after giving effect to such transaction or series of
transactions have a net worth (including, without limitation, any Indebtedness
incurred or anticipated to be incurred in connection with or in respect of such
transaction or series of transactions) equal to or greater than the net worth it
had immediately prior to such transaction or series of transactions, and (xii)
Borrower shall not become obligated with respect to any obligations or
indebtedness, nor shall any of its property become subject to any security
interest, lien, claim or other encumbrance, pursuant to such merger or
consolidation, or
(b) sell, assign, lease, transfer, abandon or otherwise dispose of any
Capital Stock or indebtedness to any other Person or any of its assets to any
other Person, except for:
------ ---
(i) sales of Inventory in the ordinary course of business,
44
(ii) sales of Equipment and fixtures (other than sales permitted
pursuant to Section 10.7(b)(iii) and Section 10.7(b)(iv) below), in the ordinary
course of the business of Borrower; provided, that, as to each and all such
-------- ----
sales, each of the following conditions is satisfied: (A) the consideration
received in connection with any such sale or disposition shall be at least equal
to the fair market value of such assets, (B) the fair market value of any such
assets so sold by Borrower in a single transaction or series of related
transactions shall not exceed $250,000 in any one case or $600,000 in the
aggregate for all such assets so sold by Borrower in any fiscal year, (C) any
and all net cash proceeds payable or delivered to Borrower from such sales shall
be used to repay any indebtedness which is secured by a purchase money security
interest or other security interest on the asset so sold or otherwise disposed
of and any remaining proceeds shall be either: (1) paid or delivered, or caused
to be paid or delivered, to Agent either, at Agent's option, for application to
the Obligations or to be held by Agent as cash collateral for the Obligations on
terms and conditions acceptable to Agent or (2) used to purchase assets to be
used in the ordinary course of the business of Borrower to replace the assets
sold or otherwise disposed of by Borrower within ten (10) Business Days after
the receipt of such proceeds by Borrower, which replacements shall have a fair
market value in the aggregate of not less than the fair market value of the
assets being replaced, (D) Agent shall have received not less than ten (10)
Business Days prior written notice of any such sale or other disposition of
assets having a fair market value in excess of $25,000, which notice shall set
forth in reasonable detail satisfactory to Agent, the parties to such sale or
other disposition, the assets to be sold or otherwise disposed of, the purchase
price and the manner of payment thereof and such other information with respect
thereto as Agent may request and (E) as of the date of such sale and after
giving effect thereto, no Event of Default or act, condition or event which with
notice or passage of time would constitute an Event of Default shall exist or
have occurred and be continuing,
(iii) the disposition of worn-out or obsolete Equipment so long as
(A) if an Event of Default exists or has occurred and is continuing, any
proceeds are paid to Agent, for the benefit of Lender, and (B) such sales do not
involve Equipment having an aggregate fair market value in excess of $250,000
for all such Equipment disposed of in any fiscal year of Borrower,
(iv) sales or other dispositions by Borrower of assets in
connection with the closing or sale of a retail store location of Borrower in
the ordinary course of Borrower's business which consist of leasehold interests
in the premises of such store, the Equipment and fixtures located at such
premises and the books and records relating exclusively and directly to the
operations of such store; provided, that, as to each and all such sales, (A) on
-------- ----
the date of, and after giving effect to, any such sale, in any calendar year,
Borrower shall not have closed or sold retail store locations accounting for
more than ten (10%) percent of all sales of Borrower in the immediately
preceding twelve (12) month period, (B) Agent shall have received not less than
ten (10) Business Days prior written notice of such sale, which notice shall set
forth in reasonable detail satisfactory to Agent, the parties to such sale or
other disposition, the assets to be sold or otherwise disposed of, the purchase
price and the manner of payment thereof and such other information with respect
thereto as Agent may request, (C) as of the date of such sale or other
45
disposition and after giving effect thereto, no Event of Default, or act,
condition or event which with notice or passage of time would constitute an
Event of Default, shall exist or have occurred, (D) such sale shall be on
commercially reasonable prices and terms in a bona fide arm's length
---- ----
transaction, and (E) any and all net proceeds payable or delivered to Borrower
in respect of such sale or other disposition shall be paid or delivered, or
caused to be paid or delivered, to Agent, for the benefit of Lender, in
accordance with the terms of this Agreement either, at Agent's option, for
application to the Obligations in accordance with the terms hereof (except to
the extent such proceeds reflect payment in respect of indebtedness secured by a
properly perfected first priority security interest in the assets sold, in which
case, such proceeds shall be applied to such indebtedness secured thereby) or to
be held by Agent as cash collateral for the Obligations on terms and conditions
acceptable to Agent,
(v) the issuance and sale by Borrower of Capital Stock of Borrower
after the date hereof, provided, that, (A) Agent shall have received not less
-------- ----
than ten (10) Business Days prior written notice of such issuance and sale by
Borrower, which notice shall specify the parties to whom such shares are to be
sold, the terms of such sale, the total amount which it is anticipated will be
realized from the issuance and sale of such stock and the net cash proceeds
which it is anticipated will be received by Borrower from such sale, (B)
Borrower shall not be required to pay any dividends or repurchase or redeem such
Capital Stock or make any other payments in respect thereof, (C) the terms of
such Capital Stock, and the terms and conditions of the purchase and sale
thereof, shall not include any terms that include any limitation on the right of
Borrower to request or receive Loans or Letter of Credit Accommodations or to
amend or modify any of the terms and conditions of this Agreement or any of the
other Financing Agreements or otherwise in any way relate to or affect the
arrangements of Borrower with Agent and Lender or are more restrictive or
burdensome to Borrower than the terms of any Capital Stock in effect on the date
hereof, and (D) as of the date of such issuance and sale and after giving effect
thereto, no Event of Default or act, condition or event which with notice or
passage of time or both would constitute an Event of Default shall exist or have
occurred; or
(c) form or acquire any Subsidiaries, except, that, Borrower may form
------ ----
or acquire Subsidiaries after the date hereof; provided, that, each of the
-------- ----
following conditions is satisfied, as determined by Agent: (i) promptly upon
such formation or acquisition, Borrower shall cause any such Subsidiary to
execute and deliver to Agent, in form and substance satisfactory to Agent: (A)
an absolute and unconditional guarantee of payment of all of the Obligations,
(B) a general security agreement granting to Agent, for itself and the benefit
of Lender, a first and only security interest in and lien upon all of the assets
and properties of such Subsidiary, (C) related Uniform Commercial Code financing
statements, and (D) such other agreements, documents and instruments as Agent
may reasonably require, (ii) promptly upon Agent's request, borrower shall
deliver the original stock certificates evidencing such shares of Capital Stock,
together with stock powers with respect thereto duly executed in blank, (iii)
the amount of the investment by Borrower in the Capital Stock of such Subsidiary
and any other amounts paid by Borrower to or for the formation or acquisition of
such Subsidiary shall not exceed the amounts permitted under
46
Section 10.10 hereof and (iv) no Event of Default, or act, condition or event
which with notice or passage of time or both would constitute an Event of
Default, shall exist or have occurred;
(d) wind up, liquidate or dissolve, or
(e) agree to do any of the foregoing.
10.8 Encumbrances. Borrower shall not create, incur, assume or suffer to
------------
exist any security interest, mortgage, pledge, lien, charge or other encumbrance
of any nature whatsoever on any of its assets or properties, including, without
limitation, the Collateral, except:
------
(a) liens and security interests of Agent, for itself and the benefit
of Lender;
(b) liens securing the payment of taxes, either not yet overdue or the
validity of which are being contested in good faith by appropriate proceedings
diligently pursued and available to Borrower and with respect to which adequate
reserves have been set aside on its books;
(c) non-consensual statutory liens (other than liens securing the
payment of taxes) arising in the ordinary course of Borrower's business to the
extent: (i) such liens secure indebtedness which is not overdue or (ii) such
liens secure indebtedness relating to claims or liabilities which are fully
insured and being defended at the sole cost and expense and at the sole risk of
the insurer or being contested in good faith by appropriate proceedings
diligently pursued and available to Borrower, in each case prior to the
commencement of foreclosure or other similar proceedings and with respect to
which adequate reserves have been set aside on its books;
(d) zoning restrictions, easements, licenses, covenants and other
restrictions affecting the use of Real Property which do not interfere in any
material respect with the use of such Real Property or ordinary conduct of the
business of Borrower as presently conducted thereon or materially impair the
value of the Real Property which may be subject thereto;
(e) purchase money security interests in Equipment (including capital
leases) and fixtures, and purchase money mortgages on real estate, or other
security interests in equipment and fixtures, arising after the date hereof to
secure indebtedness permitted under Sections 10.9(c) and 10.9(d) hereof, in each
case, so long as such security interests and mortgages do not apply to any
property of Borrower other than the Equipment or real estate so acquired or
otherwise subject to such security interest, and the indebtedness secured
thereby does not exceed the cost of the Equipment or real estate so acquired or
otherwise subject to such security interest, as the case may be;
(f) liens or rights of setoff or credit balances of Borrower with
Credit Card Issuers, but not liens on or rights of setoff against any other
property or assets of Borrower
47
pursuant to the Credit Card Agreements (as in effect on the date hereof) to
secure the obligations of Borrower to the Credit Card Issuers as a result of
fees and chargebacks;
(g) deposits of cash with the owner or lessor of premises leased and
operated by Borrower in the ordinary course of the business of Borrower to
secure the performance by Borrower of its obligations under the terms of the
lease for such premises; and
(h) the liens and security interests set forth on Schedule 9.4 hereto.
10.9 Indebtedness. Borrower shall not incur, create, assume, become or be
------------
liable in any manner with respect to, or permit to exist, any obligations or
indebtedness, except:
(a) the Obligations;
(b) trade obligations and normal accruals in the ordinary course of
business not yet due and payable, or with respect to which Borrower is
contesting in good faith the amount or validity thereof by appropriate
proceedings diligently pursued and available to Borrower and with respect to
which adequate reserves have been set aside on its books;
(c) purchase money indebtedness of Borrower (including capital
leases) to the extent not secured by liens (including capital leases) in
violation of any other provision of this Agreement, provided, that, the
-------- ----
aggregate amount of such indebtedness incurred after the date hereof, together
with indebtedness of Borrower permitted under Section 10.9(d) below, shall not
exceed $2,500,000 in the aggregate for any fiscal year of Borrower, except,
------
that, to the extent Borrower may incur indebtedness under this Section 10.9(c)
----
and Section 10.9(d) in the aggregate in any one fiscal year, commencing with the
fiscal year of Borrower ending on the Saturday closest to January 31, 1998 in
amounts less than $2,500,000, Borrower may incur additional amounts of
indebtedness under this Section 10.9(c) and Section 10.9(d) in the aggregate in
any of the following fiscal years in amounts up to the difference between
$2,500,000 and the actual amount of such indebtedness under Section 10.9(d) and
this Section 10.9(c) incurred in such prior fiscal years (but in no event shall
such indebtedness incurred under Section 10.9(d) and this Section 10.9(c) in the
aggregate in any one fiscal year exceed $5,000,000);
(d) indebtedness of Borrower arising after the date hereof in
connection with loans by a financial institution to Borrower based on the value
of, and secured only by a security interest in, Equipment or fixtures of
Borrower acquired after the date hereof, provided, that:
-------- ----
(i) as to any such indebtedness, (A) Agent shall have received
not less than ten (10) Business Days prior written notice of the intention to
incur such indebtedness, which notice shall set forth in reasonable detail
satisfactory to Agent, the amount of such indebtedness, the person to whom such
indebtedness will be owed, the interest rate, the schedule of repayments and
maturity date with respect thereto and such other information with respect
thereto as Agent may request, (B) Agent shall have received true, correct and
complete copies of all agreements,
48
documents and instruments evidencing or otherwise related to such indebtedness,
as duly authorized, executed and delivered by the parties thereto, (C) such
indebtedness shall be incurred by Borrower at commercially reasonable rates and
terms in a bona fide arm's length transaction, (D) such indebtedness shall not
---- ----
at any time include terms and conditions which in any manner adversely affect
Agent or any rights of Agent as determined in good faith by Agent or which are
more restrictive or burdensome than the terms or conditions of any other
indebtedness of Borrower (taken as a whole) as in effect on the date hereof, (E)
Borrower shall cause the person to whom such indebtedness is owed to remit all
of the proceeds of the loans giving rise to such indebtedness directly to Agent
for application to the Obligations in such order and manner as Agent shall
determine, (F) such indebtedness shall only be secured by Equipment or fixtures
to the extent the security interest therein is permitted under Section 10.8
hereof, (G) as of the date of incurring such indebtedness and after giving
effect thereto, no Event of Default or act, condition or event which with notice
or passage of time or both would constitute an Event of Default shall exist or
have occurred, (H) the aggregate amount of such indebtedness incurred after the
date hereof, together with indebtedness of Borrower permitted under Section
10.9(c) above, shall not exceed $2,500,000 in the aggregate for any fiscal year
of Borrower, except, that, to the extent Borrower may incur indebtedness under
------ ----
Section 10.9(c) and this Section 10.9(d) in the aggregate in any one fiscal
year, commencing with the fiscal year of Borrower ending on the Saturday closest
to January 31, 1998, in amounts less than $2,500,000, Borrower may incur
additional amounts of indebtedness under Section 10.9(c) and this Section
10.9(d) in the aggregate in any of the following fiscal years in amounts up to
the difference between $2,500,000 and the actual amount of such indebtedness
under Section 10.9(c) and this Section 10.9(d) incurred in such prior fiscal
years (but in no event shall such indebtedness incurred under Section 10.9(c)
and this Section 10.9(d) in the aggregate in any one fiscal year exceed
$5,000,000), (I) Borrower may only make regularly scheduled payments of
principal and interest in respect of such indebtedness, (J) Borrower shall not,
directly or indirectly, (1) amend, modify, alter or change the terms of the
agreements with respect to such indebtedness or (2) redeem, retire, defease,
purchase or otherwise acquire such indebtedness, or set aside or otherwise
deposit or invest any sums for such purpose, and (K) Borrower shall furnish to
Agent all notices or demands in connection with such indebtedness either
received by Borrower or on its behalf, promptly after the receipt thereof, or
sent by Borrower or on its behalf, concurrently with the sending thereof, as the
case may be; and
(ii) so long as each of the conditions set forth in Section 10.9(d)(i)
above are satisfied, as determined by Agent in good faith, to the extent
required by the financial institution making such loans, Agent shall, upon
Borrower's request and at Borrower's expense, execute and deliver to Borrower a
UCC partial release, in form and substance satisfactory to Agent, with respect
to the Equipment or fixtures which constitute collateral for such indebtedness;
(e) obligations or indebtedness existing as of the date hereof (and
after giving effect to the terms hereof) set forth on Schedule 10.9 hereto,
provided, that, (i) Borrower may only make regularly scheduled payments of
-------- ----
principal and interest in respect of such indebtedness
49
in accordance with the terms of the agreement or instrument evidencing or giving
rise to such indebtedness as in effect on the date hereof, (ii) Borrower shall
not, directly or indirectly, (A) amend, modify, alter or change the terms of
such indebtedness or any agreement, document or instrument related thereto as in
effect on the date hereof, or (B) redeem, retire, defease, purchase or otherwise
acquire such indebtedness, or set aside or otherwise deposit or invest any sums
for such purpose, and (iii) Borrower shall furnish to Agent all notices or
demands in connection with such indebtedness either received by Borrower or on
its behalf, promptly after the receipt thereof, or sent by Borrower or on its
behalf, concurrently with the sending thereof, as the case may be.
10.10 Loans, Investments, Guarantees, Etc. Borrower shall not, directly
------------------------------------
or indirectly, make any loans or advance money or property to any person, or
invest in (by capital contribution, dividend or otherwise) or purchase or
repurchase the Capital Stock or indebtedness or all or a substantial part of the
assets or property of any person, or guarantee, assume, endorse, or otherwise
become responsible for (directly or indirectly) the indebtedness, performance,
obligations or dividends of any Person or agree to do any of the foregoing,
except:
------
(a) the endorsement of instruments for collection or deposit in the
ordinary course of business;
(b) investments in: (i) short-term direct obligations of the United
States Government, (ii) negotiable certificates of deposit issued by any bank
satisfactory to Agent, payable to the order of the Borrower or to bearer and
delivered to Agent, and (iii) commercial paper rated A1 or P1; provided, that,
-------- ----
as to any of the foregoing, unless waived in writing by Agent, Borrower shall
take such actions as are deemed necessary by Agent to perfect the security
interest of Agent, for the ratable benefit of Lender, in such investments;
(c) the existing investment of Borrower in the Capital Stock of
Children's Products, Inc.;
(d) capital contributions, loans or other payments by Borrower to any
wholly-owned Subsidiary of Borrower formed after the date hereof in accordance
with Section 9.7 or loans by Borrower to employees of Borrower after the date
hereof, provided, that, each of the following conditions is satisfied as
-------- ----
determined by Agent: (i) in no event shall the total amount of capital
contributions, loans or other amounts paid by Borrower to or for the formation
or acquisition of all such Subsidiaries, together with all loans by Borrower to
employees of Borrower, and amounts paid in connection with any merger or
consolidation permitted under Section 10.7 hereof, exceed $1,500,000, (ii) at
the time of any such capital contribution, loan or other payment and after
giving effect thereto, no Event of Default or act, condition or event which with
notice and passage of time or both would constitute an Event of Default, shall
exist or have occurred, (iii) in the case of any loans by Borrower to a
Subsidiary or employee, the indebtedness arising from such loans shall not be
evidenced by any promissory note or other instrument, unless the original of
such note or other instrument is delivered to Agent, duly endorsed and assigned
by the payee to Agent in a form and manner acceptable to Agent, (iv) in
50
the case of any loan by Borrower to employees of Borrower, such loans shall be
for reasonable and necessary work-related travel or other ordinary business
expenses to be incurred by such employees in connection with their work for
Borrower or for the relocation of such employees in connection with their work
for Borrower, or for any other purpose related in any manner to their employment
by Borrower, and (v) as of the date of any such capital contribution, loan or
other payment, the daily average of the Excess Availability for the immediately
preceding thirty (30) consecutive day period shall be not less than $2,500,000,
and as of the date of any such capital contribution, loan or other payment and
after giving effect thereto, the Excess Availability shall be not less than
$1,000,000, and
(e) the existing loans, advances and guarantees by Borrower
outstanding as of the date hereof as set forth on Schedule 10.10 hereto;
provided, that, as to such loans, advances and guarantees, (i) Borrower shall
-------- ----
not, directly or indirectly, (A) amend, modify, alter or change the terms of
such loans, advances or guarantees or any agreement, document or instrument
related thereto, or (B) as to such guarantees, redeem, retire, defease, purchase
or otherwise acquire such guarantee or set aside or otherwise deposit or invest
any sums for such purpose and (ii) Borrower shall furnish to Agent all notices,
demands or other materials in connection with such loans, advances or guarantees
either received by Borrower or on its behalf, promptly after the receipt
thereof, or sent by Borrower or on its behalf, concurrently with the sending
thereof, as the case may be.
10.11 Dividends and Redemptions. Borrower shall not, directly or
-------------------------
indirectly, declare or pay any dividends on account of any shares of class of
Capital Stock of Borrower now or hereafter outstanding, or set aside or
otherwise deposit or invest any sums for such purpose, or redeem, retire,
defease, purchase or otherwise acquire any shares of any class of Capital Stock
(or set aside or otherwise deposit or invest any sums for such purpose) for any
consideration other than common stock or apply or set apart any sum, or make any
other distribution (by reduction of capital or otherwise) in respect of any such
shares or agree to do any of the foregoing.
10.12 Transactions with Affiliates. Borrower shall not directly or
----------------------------
indirectly, (a) purchase, acquire or lease any property from, or sell, transfer
or lease any property to, any officer, employee, shareholder, director, agent or
any other person affiliated with Borrower, except in the ordinary course of and
pursuant to the reasonable requirements of Borrower's business and upon fair and
reasonable terms no less favorable to the Borrower than Borrower would obtain in
a comparable arm's length transaction with an unaffiliated person or (b) make
any payments of management, consulting or other fees for management or similar
services, or of any indebtedness owing to any officer, employee, shareholder,
director or other person affiliated with Borrower except reasonable compensation
to officers, employees and directors for services rendered to Borrower in the
ordinary course of business.
10.13 Credit Card Agreements. Borrower shall (a) observe and perform all
----------------------
material terms, covenants, conditions and provisions of the Credit Card
Agreements to be observed and performed by it at the times set forth therein;
(b) not do, permit, suffer or refrain from doing
51
anything, as a result of which there could be a default under or breach of any
of the terms of any of the Credit Card Agreements and (c) at all times maintain
in full force and effect the Credit Card Agreements and not terminate, cancel,
surrender, modify, amend, waive or release any of the Credit Card Agreements, or
consent to or permit to occur any of the foregoing; except, that, (i) Borrower
may terminate or cancel any of the Credit Card Agreements in the ordinary course
of the business of Borrower; provided, that, Borrower shall give Agent not less
-------- ----
than fifteen (15) days prior written notice of its intention to so terminate or
cancel any of the Credit Card Agreements; (d) not enter into any new Credit Card
Agreements with any new Credit Card Issuer unless (i) Agent shall have received
not less than fifteen (15) days prior written notice of the intention of
Borrower to enter into such agreement (together with such other information with
respect thereto as Agent may request) and (ii) Borrower delivers, or causes to
be delivered to Agent, a Credit Card Acknowledgment in favor of Agent, for the
ratable benefit of Lender; (e) give Agent immediate written notice of any Credit
Card Agreement entered into by Borrower after the date hereof, together with a
true, correct and complete copy thereof and such other information with respect
thereto as Agent may request; and (f) furnish to Agent, promptly upon the
request of Agent, such information and evidence as Agent may require from time
to time concerning the observance, performance and compliance by Borrower or the
other party or parties thereto with the terms, covenants or provisions of the
Credit Card Agreements.
10.14 Adjusted Tangible Net Worth. Borrower shall, at all times, maintain
---------------------------
Adjusted Tangible Net Worth of not less than the respective amounts set forth
below for the period indicated:
Period Amount
------ ------
(a) From the date hereof to November 30, 1997 $18,000,000
(b) From December 1 of each year to and including
March 31 of the next year $23,000,000
(c) From April 1 of each year to and including
November 30 of such year $16,500,000
10.15 Compliance with ERISA.
(a) Borrower shall not with respect to any "employee benefit plans"
maintained by Borrower or any of its ERISA Affiliates: (i) terminate any of
such employee pension plans so as to incur any liability to the Pension Benefit
Guaranty Corporation established pursuant to ERISA, (ii) allow or suffer to
exist any prohibited transaction involving any of such employee benefit plans or
any trust created thereunder which would subject Borrower or such ERISA
Affiliate to a tax or penalty or other liability on prohibited transactions
imposed under the Code or ERISA, (iii) fail to pay to any such employee benefit
plan any contribution which it is obligated to pay under ERISA, the Code or the
terms of such plan, (iv) allow or suffer to exist
52
any accumulated funding deficiency, whether or not waived, with respect to any
such employee benefit plan, (v) allow or suffer to exist any occurrence of a
reportable event or any other event or condition which presents a material risk
of termination by the Pension Benefit Guaranty Corporation of any such employee
benefit plan that is a single employer plan, which termination could result in
any liability to the Pension Benefit Guaranty Corporation or (vi) incur any
withdrawal liability with respect to any multiemployer pension plan.
(b) As used in this Section 10.15, the term "employee pension
benefit plans," "employee benefit plans", "accumulated funding deficiency" and
"reportable event" shall have the respective meanings assigned to them in ERISA,
and the term "prohibited transaction" shall have the meaning assigned to it in
the Code and ERISA.
10.16 Additional Bank Accounts. Borrower shall not, directly or
------------------------
indirectly, open, establish or maintain any deposit account, investment account
or any other account with any bank or other financial institution, other than
the Blocked Accounts and the accounts set forth in Schedule 7.3 hereto, except:
(a) as to any new or additional Blocked Accounts and other such new or
additional accounts which contain any Collateral or proceeds thereof, with the
prior written consent of Agent and subject to such conditions thereto as Agent
may establish and (b) as to any accounts used by Borrower to make payments of
payroll, taxes or other obligations to third parties, after prior written notice
to Lender.
10.17 Costs and Expenses. Borrower shall pay to Agent, for the benefit of
------------------
Lender, on demand all costs, expenses, filing fees and taxes paid or payable in
connection with the preparation, negotiation, execution, delivery, recording,
administration, collection, liquidation, enforcement and defense of the
Obligations, the rights of Agent, for the benefit of Lender, in the Collateral,
this Agreement, the other Financing Agreements and all other documents related
hereto or thereto, including any amendments, supplements or consents which may
hereafter be contemplated (whether or not executed) or entered into in respect
hereof and thereof, including: (a) all costs and expenses of filing or recording
(including Uniform Commercial Code financing statement filing taxes and fees,
documentary taxes, intangibles taxes and mortgage recording taxes and fees, if
applicable); (b) all insurance premiums, appraisal fees and search fees; (c)
costs and expenses of remitting loan proceeds, collecting checks and other items
of payment, and establishing and maintaining the Blocked Accounts, together with
Agent's customary charges and fees with respect thereto; (d) charges, fees or
expenses charged by any issuer in connection with the Letter of Credit
Accommodations; (e) costs and expenses of preserving and protecting the
Collateral; (f) costs and expenses paid or incurred in connection with obtaining
payment of the Obligations, enforcing the security interests and liens of Agent,
for the benefit of Lender, selling or otherwise realizing upon the Collateral,
and otherwise enforcing the provisions of this Agreement and the other Financing
Agreements or defending any claims made or threatened against Agent and/or
Lender arising out of the transactions contemplated hereby and thereby
(including preparations for and consultations concerning any such matters); (g)
all reasonable out-of-pocket expenses and costs heretofore and from time to time
hereafter incurred by Agent during the course of periodic field examinations of
the Collateral and Borrower's operations, plus
53
a per diem charge at the rate of $600 per person per
day for Agent's examiners in the field and office; and (h) the fees and
disbursements of counsel (including legal assistants) to Agent and Lender in
connection with any of the foregoing.
10.18 Further Assurances. At the request of Agent at any time and from
------------------
time to time, Borrower shall, at its expense, duly execute and deliver, or cause
to be duly executed and delivered, such further agreements, documents and
instruments, and do or cause to be done such further acts as may be necessary or
proper to evidence, perfect, maintain and enforce the security interests and the
priority thereof in the Collateral and to otherwise effectuate the provisions or
purposes of this Agreement or any of the other Financing Agreements. Agent may
at any time and from time to time request a certificate from an officer of
Borrower representing that all conditions precedent to the making of Loans and
providing Letter of Credit Accommodations contained herein are satisfied. In
the event of such request by Agent, Agent may, at its option, cease to make any
further Loans or provide any further Letter of Credit Accommodations until Agent
has received such certificate and, in addition, Agent has determined that such
conditions are satisfied. Where permitted by law, Borrower hereby authorizes
Agent to execute and file one or more UCC financing statements signed only by
Agent.
SECTION 11. EVENTS OF DEFAULT AND REMEDIES
------------------------------
11.1 Events of Default. The occurrence or existence of any one or more of
-----------------
the following events are referred to herein individually as an "Event of
Default", and collectively as "Events of Default":
(a) (i) Borrower fails to pay any of the Obligations within three
(3) days after the same becomes due and payable or (ii) Borrower or any Obligor
fails to perform any of the covenants contained in Sections 10.1, 10.2, 10.3,
10.4, 10.6, 10.13, 10.14, 10.15 or 10.16 of this Agreement and such failure
shall continue for fifteen (15) days; provided, that, such fifteen (15) day
-------- ----
period shall not apply in the case of: (A) any failure to observe any such
covenant which is not capable of being cured at all or within such fifteen (15)
day period or which has been the subject of a prior failure within a six (6)
month period or (B) an intentional breach of Borrower or any Obligor of any such
covenant or (iii) Borrower fails to perform any of the terms, covenants,
conditions or provisions contained in this Agreement or any of the other
Financing Agreements other than those described in Sections 11.1(a)(i) and
11.1(a)(ii) above;
(b) any representation, warranty or statement of fact made by
Borrower to Agent or any Lender in this Agreement, the other Financing
Agreements or any other agreement, schedule, confirmatory assignment or
otherwise shall when made or deemed made be false or misleading in any material
respect;
54
(c) any Obligor revokes, terminates or fails to perform any of the
terms, covenants, conditions or provisions of any guarantee, endorsement or
other agreement of such party in favor of Agent or any Lender;
(d) any judgment for the payment of money is rendered against
Borrower or any Obligor in excess of $500,000 in any one case or in excess of
$1,000,000 in the aggregate and shall remain undischarged or unvacated for a
period in excess of thirty (30) days or execution shall at any time not be
effectively stayed, or any judgment other than for the payment of money, or
injunction, attachment, garnishment or execution is rendered against Borrower or
any Obligor or any of their assets;
(e) Borrower or any Obligor dissolves or suspends or discontinues
doing business;
(f) Borrower or any Obligor becomes insolvent (however defined or
evidenced), makes an assignment for the benefit of creditors, makes or sends
notice of a bulk transfer or calls a meeting of its creditors or principal
creditors;
(g) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at law or
in equity) is filed against Borrower or any Obligor or all or any part of its
properties and such petition or application is not dismissed within forty-five
(45) days after the date of its filing or Borrower or any Obligor shall file any
answer admitting or not contesting such petition or application or indicates its
consent to, acquiescence in or approval of, any such action or proceeding or the
relief requested is granted sooner;
(h) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at a law
or equity) is filed by Borrower or any Obligor or for all or any part of its
property; or
(i) any default by Borrower or any Obligor under any agreement,
document or instrument relating to any indebtedness for borrowed money owing to
any person other than Agent or Lender, or any capitalized lease obligations,
contingent indebtedness in connection with any guarantee, letter of credit,
indemnity or similar type of instrument in favor of any person other than Agent
or Lender, in any case in an amount in excess of $1,000,000, which default
continues for more than the applicable cure period, if any, with respect
thereto, or any default by Borrower or any Obligor under any material contract,
lease, license or other obligation to any person other than Agent or Lender,
which default continues for more than the applicable cure period, if any, with
respect thereto;
55
(j) any Change of Control;
(k) the indictment or threatened indictment of Borrower or any
Obligor by a governmental authority under any criminal statute, or commencement
or threatened commencement of criminal or civil proceedings against Borrower or
any Obligor, pursuant to which statute or proceedings the penalties or remedies
sought or available include forfeiture of any material portion of the property
of Borrower or such Obligor;
(l) there shall be a material adverse change in the business, assets
or prospects of Borrower or any Obligor after the date hereof; or
(m) there shall be an event of default under any of the other
Financing Agreements.
11.2 Remedies.
--------
(a) At any time an Event of Default exists or has occurred and is
continuing, Agent and Lender shall have all rights and remedies provided in this
Agreement, the other Financing Agreements, the Uniform Commercial Code and other
applicable law, all of which rights and remedies may be exercised without notice
to or consent by Borrower or any Obligor, except as such notice or consent is
expressly provided for hereunder or required by applicable law. All rights,
remedies and powers granted to Agent and Lender hereunder, under any of the
other Financing Agreements, the Uniform Commercial Code or other applicable law,
are cumulative, not exclusive and enforceable, in Agent's discretion,
alternatively, successively, or concurrently on any one or more occasions, and
shall include, without limitation, the right to apply to a court of equity for
an injunction to restrain a breach or threatened breach by Borrower of this
Agreement or any of the other Financing Agreements. Agent and Lender may at any
time or times, proceed directly against Borrower or any Obligor to collect the
Obligations without prior recourse to the Collateral.
(b) Without limiting the foregoing, at any time an Event of Default
exists or has occurred and is continuing, Agent, for the benefit of Lender, may,
in its discretion and without limitation, (i) accelerate the payment of all
Obligations and demand immediate payment thereof to Agent, for the benefit of
Lender, (provided, that, upon the occurrence of any Event of Default described
-------- ----
in Sections 11.1(g) and 11.1(h), all Obligations shall automatically become
immediately due and payable), (ii) with or without judicial process or the aid
or assistance of others, enter upon any premises on or in which any of the
Collateral may be located and take possession of the Collateral or complete
processing, manufacturing and repair of all or any portion of the Collateral,
(iii) require Borrower, at Borrower's expense, to assemble and make available to
Agent any part or all of the Collateral at any place and time designated by
Agent, (iv) collect, foreclose, receive, appropriate, setoff and realize upon
any and all Collateral, (v) remove any or all of the Collateral from any
premises on or in which the same may be located for the purpose of effecting the
sale, foreclosure or other disposition thereof or for any other purpose,
56
(vi) sell, lease, transfer, assign, deliver or otherwise dispose of any and all
Collateral (including, without limitation, entering into contracts with respect
thereto, public or private sales at any exchange, broker's board, at any office
of Agent or elsewhere) at such prices or terms as Agent may deem reasonable, for
cash, upon credit or for future delivery, with Agent or Lender having the right
to purchase the whole or any part of the Collateral at any such public sale, all
of the foregoing being free from any right or equity of redemption of Borrower,
which right or equity of redemption is hereby expressly waived and released by
Borrower and/or (vii) terminate this Agreement. If any of the Collateral is sold
or leased by Agent upon credit terms or for future delivery, the Obligations
shall not be reduced as a result thereof until payment therefor is finally
collected by Agent, for the benefit of Lender. If notice of disposition of
Collateral is required by law, five (5) days prior notice by Agent to Borrower
designating the time and place of any public sale or the time after which any
private sale or other intended disposition of Collateral is to be made, shall be
deemed to be reasonable notice thereof and Borrower waives any other notice. In
the event Agent institutes an action to recover any Collateral or seeks recovery
of any Collateral by way of prejudgment remedy, Borrower waives the posting of
any bond which might otherwise be required.
(c) Agent may apply the cash proceeds of Collateral actually received
by Agent, for the benefit of Lender, from any sale, lease, foreclosure or other
disposition of the Collateral to payment of the Obligations, in whole or in part
and in such order as Agent may elect, whether or not then due. Borrower shall
remain liable to Agent and Lender for the payment of any deficiency with
interest at the highest rate provided for herein and all costs and expenses of
collection or enforcement, including attorneys' fees and legal expenses.
(d) Without limiting the foregoing, upon the occurrence of an Event
of Default or an event which with notice or passage of time or both would
constitute an Event of Default, Agent and Lender may, at their option, without
notice, (i) cease making Loans or arranging for Letter of Credit Accommodations
or reduce the lending formulas or amounts of Loans and Letter of Credit
Accommodations available to Borrower and/or (ii) terminate any provision of this
Agreement providing for any future Loans or Letter of Credit Accommodations to
be made by Agent or Lender to Borrower.
SECTION 12. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW
-------------------------------
12.1 Confession of Judgment.
----------------------
(a) Borrower, to the extent permitted by law, and without the further
consent of or notice to Borrower, hereby irrevocably and unconditionally
authorizes the Prothonotary, Clerk of Court, or any attorney of any court of
record in the Commonwealth of Pennsylvania, or any other jurisdiction, as
attorney for Borrower to appear for Borrower in such court and confess judgment
against Borrower and in favor of Agent or Lender, at any time on or after an
Event of
57
Default exists or has occurred and is continuing, for all or any portion of the
Obligations (including, but not limited to, principal, interest, fees, costs and
expenses and including attorneys' fees and legal expenses not to exceed five
(5%) percent of the outstanding and unpaid Obligations), for which this
Agreement or a verified copy hereof shall be sufficient warrant. The authority
to enter judgment shall not be exhausted by one exercise hereof, but, to the
extent permitted by law, shall continue from time to time until final payment
and satisfaction in full of all of the Obligations. The foregoing right and
remedy is in addition to and not in lieu of any other right or remedy available
to Agent and Lender under this Agreement, the other Financing Agreements,
applicable law or otherwise.
(b) Borrower, being fully aware of its right to notice and a hearing
concerning the validity of any and all claims that may be asserted against
Borrower by Agent and Lender before a judgment can be entered hereunder or
before execution may be levied on such judgment against any and all property of
Borrower, hereby waives each of these rights and agrees and consents to judgment
being entered by confession in accordance with the terms hereof and execution
being levied on such judgment against any and all property of Borrower, in each
case without first giving notice and the opportunity to be heard on the validity
of the claim or claims upon which such judgment is entered.
12.2 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver.
---------------------------------------------------------------------
(a) The validity, interpretation and enforcement of this Agreement
and the other Financing Agreements and any dispute arising out of the
relationship between the parties hereto, whether in contract, tort, equity or
otherwise, shall be governed by the internal laws of the State of New York
(without giving effect to principles of conflicts of law).
(b) Borrower, Agent and Lender irrevocably consent and submit to the
non-exclusive jurisdiction of the Supreme Court of the State of New York in New
York County and the United States District Court for the Southern District of
New York and waive any objection based on venue or forum non conveniens with
----- --- ----------
respect to any action instituted therein arising under this Agreement or any of
the other Financing Agreements or in any way connected with or related or
incidental to the dealings of the parties hereto in respect of this Agreement or
any of the other Financing Agreements or the transactions related hereto or
thereto, in each case whether now existing or hereafter arising, and whether in
contract, tort, equity or otherwise, and agree that any dispute with respect to
any such matters shall be heard only in the courts described above (except that
Agent shall have the right to bring any action or proceeding against Borrower or
its property in the courts of any other jurisdiction which Agent deems necessary
or appropriate in order to realize on the Collateral or to otherwise enforce its
rights against Borrower or its property).
(c) Borrower hereby waives personal service of any and all process
upon it and consents that all such service of process may be made by certified
mail (return receipt requested) directed to its address set forth on the
signature pages hereof and service so made shall be
58
deemed to be completed five (5) days after the same shall have been so deposited
in the U.S. mails, or, at Agent's option, by service upon Borrower in any other
manner provided under the rules of any such courts. Within thirty (30) days
after such service, Borrower shall appear in answer to such process, failing
which Borrower shall be deemed in default and judgment may be entered by Agent
against Borrower for the amount of the claim and other relief requested.
(d) BORROWER, AGENT AND LENDER EACH HEREBY WAIVES ANY RIGHT TO TRIAL
BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS
AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR (ii) IN ANY WAY CONNECTED
WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT
OF THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS
RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. BORROWER, AGENT
AND LENDER EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION
OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT
BORROWER, AGENT OR LENDER MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS
AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES
HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
(e) Neither Agent nor Lender shall have any liability to Borrower
(whether in tort, contract, equity or otherwise) for losses suffered by Borrower
in connection with, arising out of, or in any way related to the transactions or
relationships contemplated by this Agreement, or any act, omission or event
occurring in connection herewith, unless it is determined by a final and non-
appealable judgment or court order binding on Agent and Lender, that the losses
were the result of acts or omissions constituting gross negligence or willful
misconduct. In any such litigation, Agent and Lender shall be entitled to the
benefit of the rebuttable presumption that it acted in good faith and with the
exercise of ordinary care in the performance by it of the terms of this
Agreement.
12.3 Waiver of Notices. Borrower hereby expressly waives demand,
-----------------
presentment, protest and notice of protest and notice of dishonor with respect
to any and all instruments and commercial paper, included in or evidencing any
of the Obligations or the Collateral, and any and all other demands and notices
of any kind or nature whatsoever with respect to the Obligations, the Collateral
and this Agreement, except such as are expressly provided for herein. No notice
to or demand on Borrower which Agent may elect to give shall entitle Borrower to
any other or further notice or demand in the same, similar or other
circumstances.
12.4 Amendments and Waivers. Neither this Agreement nor any provision
----------------------
hereof shall be amended, modified, waived or discharged orally or by course of
conduct, but only by a written agreement signed by an authorized officer of
Agent, and as to amendments, as also signed by an authorized officer of
Borrower. Agent shall not, by any act, delay, omission or
59
otherwise be deemed to have expressly or impliedly waived any of its rights,
powers and/or remedies unless such waiver shall be in writing and signed by an
authorized officer of Agent. Any such waiver shall be enforceable only to the
extent specifically set forth therein. A waiver by Agent of any right, power
and/or remedy on any one occasion shall not be construed as a bar to or waiver
of any such right, power and/or remedy which Agent or Lender would otherwise
have on any future occasion, whether similar in kind or otherwise.
12.5 Waiver of Counterclaims. Borrower waives all rights to interpose any
-----------------------
claims, deductions, setoffs or counterclaims of any nature (other then
compulsory counterclaims) in any action or proceeding with respect to this
Agreement, the Obligations, the Collateral or any matter arising therefrom or
relating hereto or thereto.
12.6 Indemnification. Borrower shall indemnify and hold Agent, Lender and
---------------
their directors, agents, employees and counsel, harmless from and against any
and all losses, claims, damages, liabilities, costs or expenses imposed on,
incurred by or asserted against any of them in connection with any litigation,
investigation, claim or proceeding commenced or threatened related to the
negotiation, preparation, execution, delivery, enforcement, performance or
administration of this Agreement, any other Financing Agreements, or any
undertaking or proceeding related to any of the transactions contemplated hereby
or any act, omission, event or transaction related or attendant thereto,
including, without limitation, amounts paid in settlement, court costs, and the
fees and expenses of counsel. To the extent that the undertaking to indemnify,
pay and hold harmless set forth in this Section may be unenforceable because it
violates any law or public policy, Borrower shall pay the maximum portion which
it is permitted to pay under applicable law to Agent and/or Lender in
satisfaction of indemnified matters under this Section. The foregoing indemnity
shall survive the payment of the Obligations and the termination or non-renewal
of this Agreement.
SECTION 13. THE AGENT
---------
13.1 Appointment, Powers and Immunities. Lender hereby irrevocably
----------------------------------
appoints and authorizes Agent to act as its agent hereunder and under the other
Financing Agreements with such powers as are specifically delegated to Agent by
the terms of this Agreement and of the other Financing Agreements, together with
such other powers as are reasonably incidental thereto. Agent (a) shall have no
duties or responsibilities except those expressly set forth in this Agreement
and in the other Financing Agreements, and shall not by reason of this Agreement
or any other Financing Agreement be a trustee or fiduciary for Lender; (b) shall
not be responsible to Lender for any recitals, statements, representations or
warranties contained in this Agreement or in any other Financing Agreement, or
in any certificate or other document referred to or provided for in, or received
by it under, this Agreement or any other Financing Agreement, or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement or any other Financing Agreement or any other document referred to or
provided for herein or therein or for any failure by Borrower or any Obligor or
any other Person to perform any of its
60
obligations hereunder or thereunder; and (c) shall not be responsible to Lender
for any action taken or omitted to be taken by it hereunder or under any other
Financing Agreement or under any other document or instrument referred to or
provided for herein or therein or in connection herewith or therewith, except
for its own gross negligence or willful misconduct as determined by a final non-
appealable judgment of a court of competent jurisdiction. Agent may employ
agents and attorneys-in-fact and shall not be responsible for the negligence or
misconduct of any such agents or attorneys-in-fact selected by it in good faith.
Agent may deem and treat the payee of any note as the holder thereof for all
purposes hereof unless and until the assignment thereof pursuant to an agreement
(if and to the extent permitted herein) in form and substance satisfactory to
Agent shall have been delivered to and acknowledged by Agent.
13.2 Reliance by Agent. Agent shall be entitled to rely upon any
-----------------
certification, notice or other communication (including any thereof by
telephone, telecopy, telex, telegram or cable) believed by it to be genuine and
correct and to have been signed or sent by or on behalf of the proper Person or
Persons, and upon advice and statements of legal counsel, independent
accountants and other experts selected by Agent. As to any matters not
expressly provided for by this Agreement or any other Financing Agreement, Agent
shall in all cases be fully protected in acting, or in refraining from acting,
hereunder or thereunder in accordance with instructions given by Lender as is
required in such circumstance, and such instructions of Lender and any action
taken or failure to act pursuant thereto shall be binding on Lender.
13.3 Events of Default.
-----------------
(a) Agent shall not be deemed to have knowledge or notice of the
occurrence of an Event of Default or other failure of a condition precedent to
the Loans and Letter of Credit Accommodations hereunder, unless and until Agent
has received written notice from Lender or Borrower specifying such Event of
Default or any unfulfilled condition precedent, and stating that such notice is
a "Notice of Default or Failure of Condition". In the event that Agent receives
such a Notice of Default or Failure of Condition, Agent shall give prompt notice
thereof to Lender. Agent shall (subject to Section 13.7) take such action with
respect to any such Event of Default or failure of condition precedent as Agent
shall determine. Without limiting the foregoing, and notwithstanding the
existence or occurrence and continuance of an Event of Default or any other
failure to satisfy any of the conditions precedent set forth in Section 5 of
this Agreement to the contrary, the Agent may, but shall have no obligation to,
continue to make Loans and issue or cause to be issued Letter of Credit
Accommodations for the account and risk of Lender from time to time if Agent
believes making such Loans or issuing or causing to be issued such Letter of
Credit Accommodations is in the best interests of Lender.
(b) Except with the prior written consent of Agent, Lender may not
assert or exercise any enforcement right or remedy in respect of the Loans,
Letter of Credit Accommodations or other Obligations, as against Borrower or any
Obligor or any of the Collateral or other property of Borrower or any Obligor.
61
13.4 Indemnification. Lender agrees to indemnify Agent (to the extent not
---------------
reimbursed by Borrower hereunder and without limiting the Obligations of
Borrower hereunder) for any and all claims of any kind and nature whatsoever
that may be imposed on, incurred by or asserted against Agent (including by
Lender) arising out of or by reason of any investigation in or in any way
relating to or arising out of this Agreement or any other Financing Agreement or
any other documents contemplated by or referred to herein or therein or the
transactions contemplated hereby or thereby (including the costs and expenses
that Agent is obligated to pay hereunder) or the enforcement of any of the terms
hereof or thereof or of any such other documents, provided, that, Lender shall
-------- ----
not be liable for any of the foregoing to the extent it arises from the gross
negligence or willful misconduct of the party to be indemnified as determined by
a final non-appealable judgment of a court of competent jurisdiction.
13.5 Non-Reliance on Agent and Other Lender. Lender agrees that it has,
--------------------------------------
independently and without reliance on Agent or any other Person, and based on
such documents and information as it has deemed appropriate, made its own credit
analysis of Borrower and any Obligors and has made its own decision to enter
into this Agreement and that it will, independently and without reliance upon
Agent or any other Person, and based on such documents and information as it
shall deem appropriate at the time, continue to make its own analysis and
decisions in taking or not taking action under this Agreement or any of the
other Financing Agreements. Agent shall not be required to keep itself informed
as to the performance or observance by Borrower or any Obligor of any term or
provision of this Agreement or any of the other Financing Agreements or any
other document referred to or provided for herein or therein or to inspect the
properties or books of Borrower or any Obligor. Agent will use reasonable
efforts to provide Lender with any information received by Agent from Borrower
which is required to be provided to Lender hereunder, with a copy of any Notice
of Default or Failure of Condition received by Agent from Borrower or any Lender
and with a copy of any notice of an Event of Default delivered by Agent to
Borrower; provided, that, Agent shall not be liable to Lender for any failure to
-------- ----
do so, except to the extent that such failure is attributable to Agent's own
gross negligence or willful misconduct as determined by a final non-appealable
judgment of a court of competent jurisdiction. Except for notices, reports and
other documents expressly required to be furnished to Lender by Agent hereunder,
Agent shall not have any duty or responsibility to provide Lender with any other
credit or other information concerning the affairs, financial condition or
business of Borrower or any of its Subsidiaries (or any of their affiliates)
that may come into the possession of Agent or any of its affiliates.
13.6 Failure to Act. Except for action expressly required of Agent
--------------
hereunder and under the other Financing Agreements, Agent shall in all cases be
fully justified in failing or refusing to act hereunder and thereunder unless it
shall receive further assurances to its satisfaction from Lender of its
indemnification obligations under Section 13.5 hereof against any and all
liability and expense that may be incurred by it by reason of taking or
continuing to take any such action.
13.7 Resignation of Agent. Subject to the appointment and acceptance of a
--------------------
successor Agent as provided below, Agent may resign at any time by giving notice
thereof to Lender and
62
Borrower. Upon any such resignation, Lender shall have the right to appoint a
successor Agent with the consent of Borrower, which consent shall not be
unreasonably withheld, conditioned or delayed. If no successor Agent shall have
been so appointed by Lender, and/or so consented to by Borrower and the
appointment accepted by such successor Agent within thirty (30) days after the
retiring Agent's giving of notice of resignation, then the retiring Agent may,
on behalf of Lender, appoint (without the consent of Borrower) a successor Agent
that shall be a bank, commercial finance company or other financial institution.
Upon the acceptance of any appointment as Agent hereunder by a successor Agent
in accordance with the terms hereof, such successor Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Agent, and the retiring Agent shall be discharged from its
duties and obligations hereunder. After any retiring Agent's resignation
hereunder as Agent, the provisions of this Section 13 shall continue in effect
for its benefit in respect of any actions taken or omitted to be taken by it
while it was acting as Agent.
13.8 Consents and Releases of Collateral under Financing Agreements.
--------------------------------------------------------------
Except as otherwise provided in Section 12.4 hereof with respect to certain
amendments or modifications to this Agreement, Agent may consent to any
modification, supplement or waiver under any of the Financing Agreements;
provided, that, without the prior consent of Lender, Agent shall not release any
-------- ----
Collateral or otherwise terminate any security interest in or lien upon any of
the Collateral under any of the Financing Agreements, except that no such
consent shall be required, and Agent is hereby authorized (i) to release any
security interest in or lien upon any of the Collateral which is the subject of
a disposition permitted hereunder or under the other Financing Agreements, or
(ii) to release, in any fiscal year of Borrower, any security interest in or
lien upon any of the Collateral the value of which does not exceed $5,000,000.
13.9 Collateral Matters.
------------------
(a) Except as otherwise expressly provided for in this Agreement,
Agent shall have no obligation whatsoever to Lender or any other Person to
investigate, confirm or assure that the Collateral exists or is owned by
Borrower or any Obligor or is cared for, protected or insured or has been
encumbered, or that any particular items of Collateral meet the eligibility
criteria applicable in respect of the Loans or Letter of Credit Accommodations
hereunder, or whether any particular Availability Reserves are appropriate, or
that the liens and security interests granted to Agent herein or pursuant hereto
or otherwise have been properly or sufficiently or lawfully created, perfected,
protected or enforced or are entitled to any particular priority, or to exercise
at all or in any particular manner or under any duty of care, disclosure or
fidelity, or to continue exercising, any of the rights, authorities and powers
granted or available to Agent in this Agreement or in any of the other Financing
Agreements, it being understood and agreed that in respect of the Collateral, or
any act, omission or event related thereto, Agent may act in any manner it may
deem appropriate, in its discretion, and that Agent shall have no duty or
liability whatsoever to Lender, other than liability for its own gross
negligence or willful misconduct as determined by a final non-appealable
judgment of a court of competent jurisdiction.
63
(b) Lender hereby appoints Agent, and Agent hereby appoints Lender,
as agent for the purpose of perfecting the security interest of Agent in assets
which, in accordance with Article 9 of the Uniform Commercial Code can be
perfected only by possession. Should Lender obtain possession of any such
Collateral, Lender shall notify Agent thereof and, promptly upon Agent's request
therefor, shall deliver such Collateral to Agent or in accordance with Agent's
instructions.
SECTION 14. TERM OF AGREEMENT; MISCELLANEOUS
--------------------------------
14.1 Term.
----
(a) This Agreement and the other Financing Agreements shall become
effective as of the date set forth on the first page hereof and shall continue
in full force and effect for a term ending on the date three (3) years from the
date hereof (the "Renewal Date"), and from year to year thereafter, unless
sooner terminated pursuant to the terms hereof; provided, that, this Agreement
-------- ----
and all other Financing Agreements must be terminated simultaneously. Upon the
effective date of termination or non-renewal of the Financing Agreements,
Borrower shall pay to Agent, for the benefit of Lender, in full, all outstanding
and unpaid Obligations and shall furnish cash collateral to Agent, for the
benefit of Lender, in such amounts as Agent determines are reasonably necessary
to secure Agent and Lender from loss, cost, damage or expense, including
attorneys' fees and legal expenses, in connection with any contingent
Obligations, including issued and outstanding Letter of Credit Accommodations
and checks or other payments provisionally credited to the Obligations and/or as
to which Agent and Lender have not yet received final and indefeasible payment.
Such payments in respect of the Obligations and cash collateral shall be
remitted by wire transfer in Federal funds to such bank account of Agent, as
Agent may, in its discretion, designate in writing to Borrower for such purpose.
Interest shall be due until and including the next business day, if the amounts
so paid by Borrower to the bank account designated by Agent are received in such
bank account later than 12:00 noon, New York time.
(b) No termination of this Agreement or the other Financing
Agreements shall relieve or discharge Borrower of its respective duties,
obligations and covenants under this Agreement or the other Financing Agreements
until all Obligations have been fully and finally discharged and paid, and the
continuing security interest of Agent, for the benefit of Lender, in the
Collateral and the rights and remedies of Agent and Lender hereunder, under the
other Financing Agreements and applicable law, shall remain in effect until all
such Obligations have been fully and finally discharged and paid. Upon the
receipt by Agent and Lender of payment in full in cash or other immediately
available funds of all of the Obligations (which are not contingent) and cash
collateral in such amounts and on such terms as Agent shall deem reasonably
acceptable for all contingent Obligations, upon Borrower's request and at
Borrower's expense, except as otherwise required by applicable law, Agent shall
execute and deliver to Borrower UCC-3 termination statements and such other
release documents with respect to the
64
Collateral as may be reasonably requested by Borrower, in form and substance
satisfactory to Agent, to effectuate the termination of the security interests
granted by Borrower to Agent herein and in the other Financing Agreements.
(c) In the event this Agreement is terminated prior to the end of the
then current term or renewal term of this Agreement for any reason, in view of
the impracticality and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Lender's lost
profits as a result thereof, Borrower agrees to pay to Agent, for the benefit of
Lender, upon the effective date of such termination, an early termination fee in
the amount set forth below if such termination is effective in the period
indicated:
Amount Period
------ ------
(i) 3% of the Maximum Credit From the date hereof to and
(as then in effect) including October 9, 1998.
(ii) 2% of the Maximum Credit From October 10, 1998 to and
(as then in effect) including October 9, 1999.
(iii) 1% of the Maximum Credit From October 10, 1999 to and
(as then in effect) including October 8, 2000.
Such early termination fee shall be presumed to be the amount of damages
sustained by Lender as a result of such early termination and Borrower agrees
that it is reasonable under the circumstances currently existing. In addition,
Agent, for the benefit of Lender shall be entitled to such early termination fee
upon the occurrence of any Event of Default described in Sections 11.1(g) and
11.1(h) hereof, even if Agent or Lender does not exercise its right to terminate
this Agreement, but elects, at its option, to provide financing to Borrower or
permit the use of cash collateral under the United States Bankruptcy Code. The
early termination fee provided for in this Section 14.1 shall be deemed included
in the Obligations.
(d) Notwithstanding anything to the contrary contained in Section
14.1(c), in the event of the termination of this Agreement by Borrower prior to
the end of the then current term or renewal term of this Agreement and the full
and final repayment of all of the Obligations and the receipt by Agent and
Lender of cash collateral all as provided in Section 14.1(a) at any time after
the first anniversary of the date hereof, Borrower shall only be required to pay
to Agent, for the benefit of Lender, an early termination fee in an amount equal
to one-half of one (1/2%) percent of the Maximum Credit (as then in effect) if
each of the following conditions is satisfied: (i) no Event of Default or act,
condition or event which with notice or passage of time or both would constitute
an Event of Default shall exist or have occurred and be continuing, (ii) Agent
shall have received not less than thirty (30) days prior written notice of the
intention of Borrower to so terminate this Agreement and (iii) the final payment
in full of all of the Obligations is received upon the consummation of a
Qualified Public Offering. The early termination fee shall
65
not be reduced pursuant to this Section if Borrower shall take any action or
fail to take any action primarily for the purpose of reducing such fee.
(e) Notwithstanding anything to the contrary contained in Section
14.1(c) above, in the event of the termination of this Agreement by Borrower
prior to the end of the then current term or renewal term of this Agreement and
the full and final repayment of all of the Obligations and the receipt by Agent
and Lender of cash collateral all as provided in Section 14.1(c) with the
proceeds of initial loans and advances by Lender to Borrower pursuant to a
revolving credit facility provided by Lender to Borrower to replace the
financing arrangements provided for herein, and as to which Agent shall not be
acting on behalf of Lender, Borrower shall not be required to pay the early
termination fee provided for above.
14.2 Notices. All notices, requests and demands hereunder shall be in
-------
writing and (a) made to Agent and Lender at their addresses set forth below and
to Borrower at its chief executive office set forth below, or to such other
address as either party may designate by written notice to the other in
accordance with this provision, and (b) deemed to have been given or made: if
delivered in person, immediately upon delivery; if by telex, telegram or
facsimile transmission, immediately upon sending and upon confirmation of
receipt; if by nationally recognized overnight courier service with instructions
to deliver the next Business Day, one (1) Business Day after sending; and if by
certified mail, return receipt requested, five (5) days after mailing.
14.3 Partial Invalidity. If any provision of this Agreement is held to be
------------------
invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Agreement as a whole, but this Agreement shall be construed as
though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.
14.4 Successors. This Agreement, the other Financing Agreements and any
----------
other document referred to herein or therein shall be binding upon and inure to
the benefit of and be enforceable by Lender, Agent and Borrower and their
respective successors and assigns, except that Borrower may not assign its
rights under this Agreement, the other Financing Agreements and any other
document referred to herein or therein without the prior written consent of
Agent and Lender. Lender may not assign its rights and obligations under this
Agreement (or any part thereof) without the prior written consent of Agent,
except as permitted under Section 14.5(b) hereof. Any purported assignment by
Lender without such prior express consent or compliance with Section 14.5(b)
where applicable, shall be void. The terms and provisions of this Agreement and
the other Financing Agreements are for the purpose of defining the relative
rights and obligations of Borrower, Agent and Lender with respect to the
transactions contemplated hereby and there shall be no third party beneficiaries
of any of the terms and provisions of this Agreement or any of the other
Financing Agreements.
66
14.5 Assignments and Participations.
------------------------------
(a) Lender may, in the ordinary course of its commercial banking or
finance business and in accordance with applicable law, at any time sell to one
or more banks, commercial finance companies or other financial institutions
("Participants"), including, without limitation, Congress Financial Corporation
in its individual capacity, participating interests in all or a portion of its
rights and obligations under this Agreement and the other Financing Agreements
(including all or a part of its interest in the Obligations). In the event of
any such sale by Lender of a participating interest to a Participant, Lender's
obligations under this Agreement to the other parties to this Agreement shall
remain unchanged, Lender shall remain solely responsible for the performance
thereof, Lender shall remain the holder of any such obligations for all purposes
under this Agreement and the other Financing Agreements, and Borrower and Agent
shall continue to deal solely and directly with Lender in connection with
Lender's rights and obligations under this Agreement and the other Financing
Agreements. Borrower agrees that if amounts outstanding under this Agreement
are due or unpaid, or shall have been declared or shall have become due and
payable upon the occurrence of an Event of Default, each Participant shall, to
the maximum extent permitted by applicable law, be deemed to have the right of
setoff in respect of its participating interest in amounts owing under this
Agreement to the same extent as if the amount of its participating interest were
owing directly to it as a Lender under this Agreement; provided, that, in
-------- ----
purchasing such participating interest, such Participant shall be deemed to have
agreed to share with Lender the proceeds thereof as provided in Section 7.7
hereof. Notwithstanding anything to the contrary contained herein, Lender shall
not grant any participation under which the Participant shall have rights to
approve any amendment to or waiver of or consent under this Agreement or the
other Financing Agreements, except with the consent of Agent.
------
(b) Lender may, in accordance with applicable law, at any time and
from time to time assign to another bank, commercial finance company or other
financial institution or any of its affiliates, or in connection with the sale
of its business or all or substantially all of its loan portfolio, with the
written consent of Agent, to a bank, commercial finance company or other
financial institution (an "Assignee") all (or, with the consent of Agent, less
than all, but in no event less than $5,000,000) of its rights and obligations
under this Agreement and the other Financing Agreements, pursuant to an
assignment agreement, in form and substance satisfactory to Agent, executed by
such Assignee and Lender and delivered to Agent for its acceptance and recording
in its records. Upon such execution, delivery, acceptance and recording, from
and after the effective date determined pursuant to such assignment agreement,
the Assignee thereunder shall be a party hereto and, to the extent provided in
such assignment agreement, (i) have the rights and obligations of Lender
hereunder with a Commitment and Commitment Percentage as set forth therein, and
(ii) Lender thereunder shall, to the extent provided in such assignment
agreement, be released from its obligations under this Agreement (and, in the
case of an assignment agreement covering all or the remaining portion of
Lender's rights and obligations under this Agreement, Lender shall cease to be a
party hereto). Borrower may at any time and from time to time, notify Agent of
any bank, commercial finance company or other financial
67
institution that is interested in obtaining an assignment of all or any portion
of the rights and obligations of Lender under this Agreement and the other
Financing Agreements.
(c) Upon its receipt of an assignment agreement executed by Lender
and an Assignee, Agent shall (i) promptly accept such assignment agreement and
(ii) on the effective date determined pursuant thereto record the information
contained therein in Agent's records and give notice of such acceptance and
recordation to Lender and Borrower.
(d) Except as otherwise provided in this Section 14.5, Lender shall
not, as between Borrower and Lender, be relieved of any of its obligations
hereunder as a result of any sale, assignment, transfer or negotiation of, or
granting of participation in, all or any part of the Obligations owed to Lender.
Lender is permitted to sell assignments and participations under this Section
14.5 may furnish any information concerning Borrower and its Subsidiaries and
affiliates in the possession of Lender from time to time to Assignees and
Participants (including, prospective Assignees and Participants).
(e) Borrower shall assist Lender in selling assignment participations
under this Section 14.5 in whatever manner reasonably necessary in order to
enable or effect any such assignment or participation, including (but not
limited to) the execution and delivery of any and all agreements, notes and
other documents and instruments as shall be requested and the delivery of
informational materials, appraisals or other documents for, and the
participation of relevant management in meetings and conference calls with,
potential Assignees or Participants. Borrower shall certify the correctness,
completeness and accuracy of all descriptions of Borrower and its affairs
provided, prepared or reviewed by Borrower that are contained in any selling
materials and all other information provided by it and included in such
materials.
14.6 Entire Agreement. This Agreement, the other Financing Agreements,
----------------
any supplements hereto or thereto, and any instruments or documents delivered or
to be delivered in connection herewith or therewith represents the entire
agreement and understanding concerning the subject matter hereof and thereof
between the parties hereto, and supersede all other prior agreements,
understandings, negotiations and discussions, representations, warranties,
commitments, proposals, offers and contracts concerning the subject matter
hereof, whether oral or written.
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[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
69
IN WITNESS WHEREOF, Agent, Lender and Borrower have caused these presents
to be duly executed as of the day and year first above written.
AGENT BORROWER
----- --------
CONGRESS FINANCIAL CORPORATION, CHILDREN'S CONCEPTS, INC.
as Agent doing business as Zany Brainy
By:______________________________ By:________________________________
Title:____________________________ Title:______________________________
Address: Chief Executive Office:
------- -----------------------
1133 Avenue of the Americas 000 Xxxx Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000 Xxxxxxxxx, Xxxxxxxxxxxx 00000
LENDER
------
CORESTATES BANK, N.A.
By:_____________________________
Title:___________________________
Address:
--------
0000 Xxxxxx Xxxx
Xxxxxxxx Xxxxxxx, Xxxxxxxxxxxx 00000
70
AMENDMENT NO. 1 TO AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
---------------------------
February 1 1999
Congress Financial Corporation
as Agent on behalf of the Lender,
as referred to below
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Ladies and Gentlemen:
Congress Financial Corporation, in its capacity as agent pursuant to the
Loan Agreement (as hereinafter defined) acting for and on behalf of First Union
National Bank, as successor to CoreStates Bank, N.A., as lender (in such
capacity, "Agent") and CoreStates Bank, N.A. ("Lender") have entered into
financing arrangements with Children's Concept, Inc., doing business as Zany
Brainy ("Borrower") pursuant to which Agent and Lender may make loans and
advances and provide other financial accommodations to Borrower as set forth in
the Amended and Restated Loan and Security Agreement, dated October 9, 1997, by
and among Agent, Lender and Borrower (as amended hereby and as the same may
hereafter be further amended, modified, supplemented, extended, renewed,
restated or replaced, the "Loan Agreement") and the other agreements, documents
or instruments referred to therein or at any time executed and/or delivered in
connection therewith or related thereto (all of the foregoing, including the
Loan Agreement, as the same now exists or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced, being collectively
referred to herein as the "Financing Agreements"). All capitalized terms used
herein shall have the meaning assigned thereto in the Loan Agreement, unless
otherwise defined herein.
Borrower and Children's Products, Inc. ("Guarantor") have requested certain
amendments to the Loan Agreement and Agent and Lender are willing to agree to
such amendments, subject to the terms and conditions contained in this
Amendment. By this Amendment, Agent, Lender, Borrower and Guarantor desire and
intend to evidence such amendments.
In consideration of the foregoing and the agreements and covenants
contained herein, the parties hereto agree as follows:
1. Section 3.4. The Loan Agreement is hereby amended to delete all
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references to "Section 3.5" contained therein and substitute the following
therefor: "Section 3.4".
2. Inventory Lending Formula. Section 3.1(a) of the Loan Agreement is
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hereby deleted in its entirety and replaced with the following:
"(a) Subject to, and upon the terms and conditions contained
herein, Lender agrees to fund the Loans in amounts requested by Borrower up
to the amount equal to:
(i) the lesser of the Maximum Credit (as then in effect); or
(A) during the period commencing on January 1 of each calendar
year through and including March 31 of such calendar year, the lesser of:
(1) fifty-five (55%) percent multiplied by the Value of Eligible Inventory
or (2) seventy-eight (78%) percent of the Net Off Peak Recovery Cost
Percentage multiplied by the Cost of Eligible Inventory, or
(B) during the period commencing on April 1 of each calendar
year through and including July 31 of such calendar year, the lesser of:
(1) sixty (60%) percent multiplied by the Value of the Eligible Inventory
or (2) eighty-five (85%) percent of the Net Off Peak Recovery Cost
Percentage multiplied by the Cost of Eligible Inventory, or
(C) during the period commencing on August 1 of each calendar
year through and including October 31 of such calendar year, the lesser of
(1) sixty-five percent (65%) multiplied by the Value of the
Eligible Inventory or (2) ninety-two (92%) percent of the Net Peak Recovery
Cost Percentage multiplied by the Cost of Eligible Inventory or,
(D) during the period commencing on November 1 of each
calendar year through and including November 30 of such calendar year, the
lesser of (1) sixty-five (65%) percent multiplied by the Value of the
Eligible Inventory or (2) seventy (70%) percent of the Net Peak Recovery
Cost Percentage multiplied by the Cost of Eligible Inventory, or
(E) during the period commencing on December 1 of each
calendar year through and including December 31 of such calendar year, the
lesser of (1) fifty-five (55%) percent of the value of the Eligible
Inventory or (2) fifty-nine (59%) percent of the Net Peak Recovery Cost
Percentage multiplied by the Cost of Eligible Inventory minus
-----
(ii) the Availability Reserves."
3. Loans, Investments, Guarantees, Etc. Section 10.10(d)(i) of the Loan
------------------------------------
Agreement is hereby deleted in its entirety and the following substituted
therefor:
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"(i) in no event shall the total amount of capital contributions, loans or
other amounts paid by Borrower to or for the formation or acquisition of a
Subsidiary engaged principally in owning and operating a site on the
internet on behalf of Borrower for the purpose of selling the Inventory
exceed $3,000,000 and in no event shall the total amount of capital
contributions, loans or other amounts paid by Borrower to or for the
formation or acquisition of all other Subsidiaries, together with all loans
by Borrower to employees of Borrower, and amounts paid in connection with
any merger or consolidation permitted under Section 10.7 hereof, exceed
$1,500,000,"
4. Additional Representations and Warranties. Borrower represents,
-----------------------------------------
warrants and convenants with and to Agent and Lender as follows, which
representations, warranties and covenants are continuing and shall survive the
execution and delivery hereof, and the truth and accuracy of, or compliance with
each, together with the representations, warranties and covenants in the other
Financing Agreements, being a continuing condition of the making of Loans by
Agent and Lender to Borrower:
(a) No Event of Default or act, condition or event which with notice
or passage of time or both would constitute an Event of Default exists or has
occurred as of the date of this Amendment (after giving effect to the amendments
to the Financing Agreements made by this Amendment).
(b) This Amendment has been duly executed and delivered by Borrower
and is in full force and effect as of the date hereof and the agreements and
obligations of Borrower contained herein consitute legal, valid and binding
obligations of Borrower enforceable against Borrower in accordance with their
respective terms.
5. Conditions to Effectiveness of Amendment. The effectiveness of the
----------------------------------------
other provisions of this Amendment shall be subject to the satisfacton of each
of the following additional conditions precedent:
(a) Agent and Lender shall have received an executed original or
executed original counterparts of this Amendment (as the case may be) duly
authorized, executed and delivered by the respective party or parties hereto;
and
(b) no Event of Default shall exist or have occurred and no event
shall have occurred or exist which with notice or passage of time or both would
constitute an Event of Default.
6. Effect of this Amendment. Except as modified pursuant hereto, no other
------------------------
changes or modifications to the Loan Agreement and the other Financing
Agreements are intended or implied and in all other respects the Loan Agreement
and the other Financing Agreements are hereby specifically ratified, restated
and confirmed by all parties hereto as of the effective date hereof. To the
extent of conflict between the terms of this Amendment, the Loan
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Agreement and the other Financing Agreements, the terms of this Amendment shall
control. The Loan Agreement and this Amendment shall be read and construed as
one agreement.
7. Further Assurances. The parties hereto shall execute and deliver such
------------------
additional documents and take such additional action as may be necessary or
desirable to effectuate the provisions and purposes of this Amendment.
8. Governing Law. The validity, interpretation and enforcement of this
-------------
Amendment and any dispute arising out of the relationship between the parties
hereto in connection with this Amendment, whether in contract, tort, equity or
otherwise, shall be governed by the internal laws of the State of New York
(without giving effect to principles of conflicts of law).
9. Binding Effect. This Amendment shall be binding upon and inure to the
--------------
benefit of each of the parties hereto and their respective successors and
assigns.
10. Counterparts. This Amendment may be executed in any number of
------------
counterparts and by each of the parties hereto in separate counterparts, each of
which shall be an original, but all of which shall together constitute one and
the same agreement. In making proof of this Amendment, it shall not be
necessary to produce or account for more than one counterpart thereof signed by
each of the parties hereto.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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The parties hereto have caused this Amendment to be duly executed and
delivered by their authorized officers as of the day and year first above
written.
Very truly yours,
CHILDREN'S CONCEPT, INC.
^^ signature illegible
By:______________________
Title: Secretary
-------------------
AGREED:
CONGRESS FINANCIAL CORPORATION,
as Agent
^^ signature illegible
By:____________________________
Title: V.P.
-------------------------
ACKNOWLEDGED AND AGREED:
CHILDREN'S PRODUCTS, INC.
^^ signature illegible
By:____________________________
Title: President
-------------------------
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